A 

/ 



PRACTICAL TREATISE 



ON 



BANKING. 



JAMES WILLIAM GILBART, F.R.S. 
it 

LATE GENERAL MANAGER OF THE LONDON AND WESTMINSTER BANK. 

A NEW EDITION, WITH A 

VIEW OF AMERICAN BANKING SYSTEMS AND STATISTICS TO 1860. 
By J. SMITH IIOMANS, 

EDITOR OF "THE BANKER'S MAGAZINE," AND AUTHOR OF "CYCLOPEDIA OF COMMERCE." 

TO WHICH IS ADDED, 
"MONEY"-A LECTURE BY HENRY C. CAREY. 



PHILADELPHIA: 
HENRY CAREY BAIRD, 

No. 406 WALNUT ST. 

18G0. 



\llcO 



COLLINS, PRINTER, 



GIFT 

ESTATE OF 

WILLIAM C. BIVESJ 

APRIL, 1940 



TO 
THE RIGHT HONORABLE 

LORD MONTEAGLE, F. R S., 

COMPTROLLER GENERAL OF HER MAJESTY'S EXCHEQUER, ETC., ETC., ETC., 

■WHO, A3 

A DIRECTOR OF THE PROVINCIAL BANK OF IRELAND, 

AS 

CHANCELLOR OF THE EXCHEQUER, 

AND A3 

FRAMER OF THE REPORT OF THE COMMITTEE OF THE HOUSE OF LORDS, 

APPOINTED TO INQUIRE INTO 

THE CAUSES OF THE COMMERCIAL DISTRESS OF 1S47, 

DISPLAYED A PROFOUND KNOWLEDGE OF THE PRINCIPLES 

OP 

PRACTICAL BANKING, 

fffcfs £&Tork 

IS, WITH PERMISSION, RESPECTFULLY DEDICATED, 

THE AUTHOR. 



PREFACE BY THE AUTHOR 



"The best security against management of banking affairs must ever be found in the capacity and 
integrity of those who are intrusted with the administration of them, and in the caution and prudemo 
of the public; but no legislative regulation should be omitted which can increase and insure the sta- 
bility of establishments upon which commercial credit so much depends."— Speech from Vie Throne 
in 1837. 



In the preface to my " History and Principles of Banking," I made the follow- 
ing remarks : — 

"Banking is both an art and a science. As an art, it is a branch of trade inti- 
mately connected with every man's business ; as a science, it forms an important 
portion of political economy. The knowledge of banking as an art, is acquired 
like that of other arts, by serving an apprenticeship, or engaging practically in 
its operations. The knowledge of banking as a science, may be acquired, like 
that of other sciences, by reading, observation, and reflection. These two 
branches of knowledge do not always accompany each other. Some, who are 
practically engaged in banking, do not study its principles; while those who 
have written upon its principles, have for the most part been political econo- 
mists and statesmen, who were unacquainted with its practical details. This 
publication will perhaps be thought worthy of some degree of attention upon 
the ground that it professes to be a scientific work, written by a practical man." 

The present work professes to treat of banking as an art. "Art is the appli- 
cation of knowledge to a practical end."* The practical end of banking, as of 
all other trades and professions, is to get money. This book treats of the means 
by which that end is obtained, points out the rules to be followed, and the errors 
to be avoided, shows how these rules are applied by various banking institutions, 
and in different districts of the United Kingdom, exhibits the qualifications neces- 

* Sir John Herschel. 



VU1 PREFACE 

sary to the party by whom these rules are administered, and describes those moral 
virtues whioh are as indispensable as professional knowledge to the attainment of 
success. 

It may be supposed, that in discussing the "effects of the Act of 1844," and 
"the Laws of the Currency," I have wandered beyond the limits of practical 
banking. But these matters are viewed only in their practical results. The prin- 
ciples of banking are deductions from facts. The science of banking is a collec- 
tion of these principles. It is of importance to have a correct notion of the nature 
of this science. In the physical sciences, as in chemistry and electricity, we often 
discover a principle, and then apply it to a practical end. But in banking, and in 
political economy, generally, we first collect our facts, and then ascend from facts 
to principles. Hence books, in which are described the practical operations of 
banking, and the actual results of legislative enactments, furnish the materials 
which enable us to arrive at sound principles. 

There are several classes of persons to whom I think this book may be more 
particularly useful. 

The first class includes those public men who have occasion to write or to speak 
upon our banking institutions. Statesmen, authors, and reviewers, however cor- 
rect may be their knowledge of banking as a science, often fall into mistakes when 
they attempt to describe its practical operations. Although it must be admitted 
that the principles of banking may be well understood without any acquaintance 
with details, yet it is equally true that if a public man have acquired a competent, 
degree of practical information, his opinions will carry greater weight, and he will 
be less liable to fall into erroneous conclusions. They, especially, who are desirous 
of altering the constitution of our banking establishments should be anxious not to 
weaken the force of their recommendations by making misstatements as to matters 
of fact. The public have a right to expect that they who attempt to improve a 
system should be well acquainted with the system they attempt to improve. 

The second class are those who are practically engaged in banking operations. 
Those directors of our joint-stock banks, who may have been appointed chiefly on 
account of their high character and local influence, may derive from this work 
some practical information, which will assist them in the discharge of their official 
duties. Young men, too, who occupy subordinate stations in our banking estab- 
lishments, may here acquire those enlarged views that will qualify them for higher 
appointments. One object of this work is, to aid the formation of good practical 
bankers. Even to experienced bankers, books on banking are useful, not only from 
the information they impart, but from the impressions they produce, and the recol- 
lections they awaken. In banking, as in morals, we often go astray, more from 
want of firmness than from want of knowledge. "We have all need to be reminded 
of the importance of a steady adherence to sound principles. And the more 



BY J. W. GILBART. IX 

frequently the right path is pointed out to us, the less likely are we to wander into 
those which are forbidden. 

The shareholders in joint-stock banks are a class to whom the subject must be 
of the deepest interest. Upon the wise administration of their respective banks 
will depend the amount of their dividends and the safety of their capital. This 
book professes to show in what way this wise administration may be secured. 
Shareholders may here learn how to judge of the conduct of their directors, and 
(what is of no less importance) how to regulate their own. 

To all persons who " keep bankers," it must be useful to know by what rules 
bankers manage their business. They will thus be able to conduct their account 
so as to give satisfaction to their banker. And they will be able to judge now far 
he may be disposed to grant them such assistance as they may occasionally require. 
A large number of persons, especially in London, have not yet discovered the ad- 
vantage of keeping a banker. They imagine that banks are merely places in which 
the opulent deposit their superfluous riches. The perusal of this work will be suffi- 
cient to show that the advantages of banking are not confined to the wealthy. 

I do not know that I can promise much amusement, except to those who find 
amusement in the pursuit of knowledge. Banking is considered a dry subject. 
So are all subjects until they are understood. I think I may say, that neither in 
the matter, nor in the style, will my readers find anything here which they cannot 
understand. They who wish only for such a general acquaintance with banking, 
as in the present day every man of education is expected to possess, may read the 
first hundred and thirty pages, omitting the third, fifth, twelfth, thirteenth, and 
fourteenth sections. They may then consult their own taste as to whether they 
will read any other portions of the work. Should they do no more than this, they 
will obtain as much knowledge of practical banking as they will probably require 
for the purposes of general society, even in the company of bankers. 

This book is designed to be useful to the public at large, by circulating that kind 
of information, which, as it becomes more widely diffused, will tend to prevent a 
recurrence of those evils that have in too many instances resulted from the bad 
administration of some of our banking institutions. To give useful information 
to the public has been the aim of this and of all my other works. When this-book 
first appeared, there existed no other publication that described in detail the inte- 
rior operations of a bank. I am happy to say, that since that period several valua- 
ble works of a similar kind have been published. And we are now presented 
monthly, in the "Bankers' Magazine," with excellent articles on practical banking, 
written chiefly by practical bankers. 

The first edition of this work was published in May, 1827 ; the second in January, 
1828; the third in December, 1834; and the fourth in October, 1836. In the be- 
ginning of the year 1847, I determined to publish a new edition ; but before I had 



X PREFACE BY J. W. GILBART. 

prepared it for publication the pressure came, and Parliamentary Committees were 
appointed to inquire into the causes of the distress. My position required that I 
should make myself acquainted with the evidence given before those committees. 
I wrote out my reflections on some portions of this evidence, and have embodied 
them in the present work. Hence one cause of the increased size of the book, and 
of the delay which has attended its publication. This edition has the advantage 
of an elaborate Index, the uses of which are pointed out in the last section of the 
second part. 

I have been so long known as a writer on banking, and my writings have met 
with so much acceptance, that it is not necessary I should enumerate any claims I 
may be supposed to have on public attention. But there is one claim that gathers 
strength by time, that is, experience. And in publishing a new edition of a prac- 
tical work, it may not be inappropriate to state, that it is now upwards of thirty- 
six years since I first engaged in the business of banking, and I have been above 
twenty two years a manager. I am thankful to acknowledge, that during those 
twenty-two years I have not had one unsuccessful year. 

J. W. G. 

Londox, July bth, 1849. 



CONTENTS. 



Part First.— OF PRACTICAL BANKING. 



PAGB 



I. The Nature of Banking 1 

II. The Utility of Banking 2 

III. Banking Terms 8 

V. The General Administration of a Bank . . ^2 
V. The Administration of a Bank with regard to Pro- 
ceedings on Bills of Exchange . . . . 28 
VI. The Administration of a Bank with regard to the 

Employment of its Surplus Funds . . . 41 
II. The Administration of a Bank during a Season of 

Pressure 52 

VIII. The Administration of a Bank under the Act of 1844 61 
IX. The Administration of the Banking Department of 

the Bank of England 82 

X. The Administration of Joint-Stock Banks, with an 

Inquiry into* the Causes of their Failures . . 99 

XI. The Administration of the Office . . . 126 

XII. Banking Book-Keeping 150 

XIII. Banking Calculations 184 

XIV. Banking Documents . . . ; . . . 202 



Xll CONTENTS. 

Part Second.— OF BANKING INSTITUTIONS. 

I. The Bank of England . . . . . . 233 

II. The London Private Bankers .... 249 

III. The Joint-Stock Banks in London . . . 259 

IV. The Country Private Banks .... 284 
V. The Country Joint-Stock Banks . . . 300 

VI. The Banks oe Scotland 311 

VII. The Banks of Ireland 352 

VIII. The Moral and Religiod s Duties op Banking Compa- 
nies 387 

IX. Ten Minutes' Advice about keeping a Banker . 424 

X. Index Beading 431 



APPENDIX. 



The Bank of France 433 

Banks of the United States 440 

Index to Subjects in Gllbart's Treatise .... 443 
Banks and Banking in the United States . . . 459 
Money. By Henry C. Carey 525 



A PRACTICAL TREATISE 



ON 



BANKING 



Part. L — OF PRACTICAL BANKING. 



Section I. — THE NATURE OF BANKING. 

" What is it that we call a Banker ? There is in this city a company 
or corporation called goldsmiths, and most of those called bankers are of 
that corporation ; but so far as I know, there is not a company or corpo- 
ration in England called bankers, nor has the business any definition or 
description, either by common law or by statute. By custom, we call a 
man a banker who has an open shop, with proper counters, servants, and 
books, for receiving other people's money, in order to keep it safe, and 
return it upon demand ; and when any man has opened such a shop we 
call him a banker, without inquiring whether any man has given him 
money to keep or no ; for this is a trade where no apprenticeship is re- 
quired, it having never yet been supposed that a man who sets up the 
trade of banking could be sued upon the statute of Queen Elizabeth, 
which enacts, that none shall use any art or mystery then used, but such 
as have served an apprenticeship in the same." (Speech, delivered in 
the House of Commons, in 1746. See the London Magazine for that 
year, p. 120.) 

The term bank is derived from banco, the Italian word for bench, as 
the Lombard Jews in Italy kept benches in the market-place, where they 
exchanged money and biljs. When a banker failed, his bench was bro- 
ken by the populace ; and from this circumstance we have our term bank- 
rupt. 

A banker is a dealer in capital, or, more properly, a dealer in money. 
He is an intermediate party between the borrower and the lender. He 
borrows of one party and lends to another ; and the difference between 
the terms at which he borrows and those at which he lends, forms the 

1 



A Treatise on Banking. 

source of his profit. By this means he draws into active operation those 
small sums of money which were previously unproductive in the hands of 
private individuals ; and at the same time furnishes accommodation to 
those who have need of additional capital to carry on their commercial 
transactions. 

Banks have been divided into private and public. A private bank is 
that in which there are but few partners, and these attend personally to its 
management. A public bank is that in which there are numerous part- 
ners, and they elect from their own body a certain number, who are in- 
trusted with its management. The latter are usually called joint-stock 
banks. 

The business of banking consists chiefly in receiving deposits of money, 
upon which interest may or may not be allowed ; in making advances 
of money, principally in the way of discounting bills ; and in effecting 
the transmission of money from one place to another. Private banks in 
metropolitan cities are usually the agents of the banks in the provinces, 
and charge a commission on their transactions. In making payments, 
many country banks issue their own notes. 

The disposable means of a bank consist of, First, the capital paid down 
by the partners, or shareholders. Secondly, the amount of money lodged 
by their customers. Thirdly, the amount of notes they are able to keep 
out in circulation. Fourthly, the amount of money in the course of trans- 
mission, that is, money they have received, and are to repay, in some dis- 
tant place, at a future time. 

These disposable means are employed, First, in discounting bills. Sec- 
ondly, in advances of money in the form of cash credits, loans, or over- 
drawn accounts. Thirdly, in the purchase of government or other secu- 
rities. Fourthly, a part is kept in the banker's till, to meet the current de- 
mands. Of these four ways of employing the capital of a bank, three are 
productive, and one is unproductive. The discounting of bills yields in- 
terest-; the loans, and the cash credits, and the overdrawn accounts, yield 
interest ; the government securities yield interest ; the money in the till 
yields no interest. 

The expenses of a bank may be classified thus : rent, taxes, and repairs 
of the house in which the business is carried on ; salaries of the officers-; 
stationer's bill for books, paper, notes, stamps, &c. ; incidental expenses, 
as postages, coals, &c. 

The profits of a bank are that portion of its total receipts, — including 
discount, interest, dividends, and commission, — which exceeds the amount 
of the expenses. 



Section II.— THE UTILITY OF BANKING. 

In the first place, banks are useful as places of security for the deposit 
of money. The circumstance which gave rise to the business of banking 
In this country was a desire on the part of the merchants of London to 

2 



The Utility of Banking. 

obtain a place where they might lodge their money in security. Every 
one who has had the care of large sums of money knows the anxiety 
which attends their custody. A person in this case must either take care 
of his money himself or trust it to his servants. If he take care of it him- 
self, he will often be put to inconvenience, and will have to deny himself 
holidays and comforts, of which a man who is possessed of much money 
would not like to be deprived. 

If he intrust it to others, he must depend upon their honesty and their 
ability. And although, in many important cases, a master is compelled 
to do this, yet he does not feel the same satisfaction as if the money 
was actually under his own care. Some instances of neglect or of dis- 
honesty will necessarily occur, and these will occasion suspicion in ref- 
erence to other parties against whom no suspicion ought to be enter- 
tained. Besides, in both these cases the money is lodged under the own- 
er's own roof, and is subject to thieves, to fire, and to other contingen- 
cies, against which it is not always easy to guard. 

All these evils are obviated by means of banking. The owner of 
money need neither take the charge of it himself nor trust to his de- 
pendants. He can place it in the hands of his bankers. They are 
wealthy men, and are responsible to him for the amount. If they are 
robbed, it is no loss to him ; they are pledged to restore to him the amount 
of his deposit when he shall require it. Whenever he wants money he 
has only to write an order or draft upon his banker, and the person to 
whom he is indebted takes the draft to the bank, and, without any hesita- 
tion or delay, receives the money. 

2. The bankers allow interest for money placed in their hands. 

By means of banking, the various small sums of money which would 
have remained unproductive in the hands ftf individuals, are collected into 
large amounts in the hands of the bankers, who employ it in granting facil- 
ities to trade and commerce. Thus banking increases the productive 
capital of the nation. At the origin of banking, " the new-fashioned 
bankers," as they were called, allowed a certain rate of interest for 
money placed in their hands. The banks of Scotland carry this practice 
to the greatest extent, as they receive upon interest so low an amount 
as ten pounds ; and also allow interest on the balance of a running 
account. Many of the country bankers in England allow interest on 
the balance of a running account, and charge commission on the amount 
of the money withdrawn. The London bankers generally do not allow 
interest on deposits, but neither do they charge commission. All their 
profits are derived from the use of their customers' money. The banks 
of Scotland do not charge commission, although they allow interest on 
deposits ; but then those banks have a profit by the issue of their notes. 
The London bankers do not issue notes. 

3. Another advantage conferred upon society by bankers is, that they 
make advances to persons who want to borrow money. These advances 
are made, -by discounting bills, upon personal security, or upon the joint 
security of the borrower and two or three of his friends, and sometimes 
upon mortgage. Persons engaged in trade and commerce are thus en- 
abled to augment their capital, and consequently their wealth. The in- 



A Treatise on Banking. 

crease of money in circulation stimulates production. "When bankers are 
compelled to withhold their usual accommodation, both the commercial and 
the agricultural interests are plunged into extreme distress. The great 
advantage arising to a neighbourhood from the establishment of a bank, 
is derived mainly from the additional supplies of money advanced in 
the form of loans or discounts to the inhabitants of the place. This 
principle is so well understood in Scotland, that branch banks are some- 
times established in poor districts, with a view of obtaining a future profit 
from the prosperity which the bank will introduce. (Evidence before 
the Select Committee of the House of Commons upon the Abolition of 
Small Notes, p. 43.) 

4. Another benefit derived from bankers is, that they transmit money 
from one part of the country to another. 

There is scarcely a person in business who has not occasion sometimes 
to send money to a distant town. But how is this to be done ? He can- 
not send a messenger with it on purpose ; that would be too expensive. 
He cannot send it by post ; that would be too hazardous. Besides, the 
sum may be some fraction of a pound, and then it cannot go by post. 
The post, too, takes a considerable time, as three letters at least must pass 
on the transaction. If he live in London he may obtain a bank post bill, 
but he cannot obtain that in the country ; and he may not be able to ob- 
tain it in London for the exact sum he wants. How, then, is the money 
to be sent ? 

Every country banker opens an account with a London banker. If. 
then, a person live at Penzance, and wants to send a sum of money to 
Aberdeen, he will pay the money into the Penzance bank, and his friend 
will receive it of the Aberdeen bank. The whole transaction is this. 
The Penzance bank will direct their agent in London to pay the money 
to the London agent of the Aberdeen bank, who will be duly advised of 
the payment. A small commission charged by the Penzance bank, and 
the postages, constitute all the expenses incurred, and there is not the 
least risk of loss. 

Commercial travellers, who are collecting money, derive great advan- 
tage from the banks. Instead of carrying with them, throughout the 
whole of their journey, all the money they have received, when perhaps 
it may be wanted at home, they pay it into a bank, by whom it is remit- 
ted with the greatest security and at little expense ; and they are thus de- 
livered from an encumbrance which would have occasioned great care 
and anxiety. 

5. Wherever a bank is established, the public are able to obtain that 
denomination of currency which is best adapted for carrying on the com- 
mercial operations of the place. In a town which has no bank, a person 
may have occasion to use small notes, and have none but large ones ; and 
at other times he may have need of large notes, and not be able to obtain 
them. But where a bank is established there can be no difficulty of this 
kind. The bank issues that description of notes which the receivers may 
require, and are always ready to exchange them for others of a different 
denomination. Banks, too, usually supply their customers and the neigh- 
bourhood with silver ; and if, on the other hand, silver should be too 

4 



The Utility of Banking. 

abundant, the banks will receive it, either as a deposit or in exchange for 
their notes. Hence, where banks are established, it is easy to obtain 
change. This is very convenient to those who have to pay large sums in 
wages, or who purchase in small amounts the commodities in which they 
trade. 

6. By means of banking there is a great saving of time in making mon- 
ey transactions. 

How much longer does it take to count out a sum of money in pounds, 
shillings, and pence, than it does to write a draft. And how much less 
trouble is it to receive a draft in payment of a debt, and then to pay it into 
the banker's, than it is to receive a sum of money in currency. What in- 
conveniences would arise from the necessity of weighing sovereigns. 
What, a loss of time from disputes as to the goodness or badness of partic- 
ular pieces of money. 

Besides the loss of time that must necessarily occur on every transac- 
tion, we must also reckon the loss which every merchant or tradesman in 
an extensive line of business would certainly sustain in the course of a 
year, from receiving counterfeit or deficient coin, or forged notes. From 
all this risk he is exempt by keeping a banker. If he receive payment 
of a debt, it is in the form of a draft upon his customer's banker. He 
pays it into his own banker's, and no coin or bank notes pass through his 
hands. If he draw bills, those bills are presented by his banker ; and if 
his banker take bad money it is his own loss. 

7. A merchant or tradesman who keeps a banker, saves the trouble and 
expense of presenting those bills or drafts which he may draw upon his 
customers, or which he may receive in exchange for his goods. He pays 
these into the hands of his banker, and has no further trouble. He has 
now no care about the custody of his bills ; no anxiety about their being 
stolen ; no danger of forgetting them until they are overdue, and thus ex- 
onerating the indorsers ; no trouble of sending to a distance in order to 
demand payment. He has nothing more to do than to see the amount 
entered to his credit in his banker's books. If a bill be not paid, it is 
brought back to him on the day after it falls due, properly noted. The 
banker's clerk and the notary's clerk are witnesses ready to come forward 
to prove that the bill has been duly presented, and the notary's ticket at- 
tached to the bill assigns the reason why it is not paid. But if any in- 
dorser of the bill has given a reference in case of need, that is, if any in- 
dorser has written on the back of the bill that, some other party will pay it 
in case the accepter does not, then the notaiy takes the bill to the referee, 
and procures the money from him. 

This circumstance alone must cause an immense saving of expense to 
a mercantile house in the course of a year. Let us suppose that a mer- 
chant has only two bills due each day. These bills may be payable in 
distant parts of the town, so that it may take a clerk half a day to present 
them. And in large mercantile establishments it would take up the whole 
time of one or two clerks to present the due bills and the drafts. The 
salaries of these clerks are therefore saved by keeping an account at a 
banker's. Besides the saving of expense, it is also reasonable to suppose 
that losses upon bills would sometimes occur from mistakes or over- 

5 



A Treatise on Banking. 

sights, from miscalculation as to the time a bill would become due, from 
errors in marking it up, from forgetfulness to present it, or from present- 
ing it at the wrong house. In these cases, the indorsers and the draw- 
ers are exonerated ; and if the accepter do not pay the bill, the amount is 
lost. In a banking-house such mistakes are not so likely to occur, though 
they do occur sometimes ; but the loss falls upon the banker, and not upon 
his customer. 

8. Another advantage from keeping a banker in London is, that by 
this means you have a continual referee as to your respectability. If a 
mercantile house in the country write to their agent, to ascertain the re- 
spectability of a firm in London, the first inquiry is, Who is their banker ? 
And when this is ascertained, the banker is applied to through the proper 
channel, and he gives his testimony as to the respectability of his custom- 
er. When a trader gives his bill, it circulates through the hands of many 
individuals to whom he is personally unknown ; but if the bill is made 
payable at a banking-house, it bears on its face a reference to a party to 
whom the accepter is known, and who must have some knowledge of his 
character as a tradesman. This may be an immense advantage to a man 
in business, as a means of increasing his credit ; and credit, Dr. Franklin 
says, is money. 

9. The keeping an account at a banking-house, enables a trader not 
only to give a constant reference as to his own respectability, but it also 
enables him to ascertain the respectability of other persons who keep 
bankers. There are numerous cases in which a trader may wish to know 
this. A stranger may bring him a bill, and want goods in exchange ; or 
he may have drawn a bill upon a customer, and wishes to ascertain if this 
bill would be paid before he gave him any further credit. If this bill is 
not made payable at a banking-house, he can obtain no information. But 
suppose the bill is made payable at a banking-house ; even then he can 
obtain no information, unless he himself has a banker. If he take the bill 
to the banker's, at whose house it is made payable, and say, " Gentlemen, 
I will thank you to inform me if the accepter of this bill be a respectable 
man. May I safely give goods or money in exchange for it?" They 
will reply, " Sir, we never answer such questions to strangers." But if 
the holder of this bill keep an account at a banker's, he has only to ask 
his banker to make the inquiry for him, and he will easily obtain the most 
ample information. Among nearly all the bankers in London, the prac- 
tice is established of giving information to each other as to the respecta- 
bility of their customers. For as the bankers themselves are the greatest 
discounters of bills, it is their interest to follow this practice ; and indeed 
the interest of their customers also, of those at least who are respectable. 

10. By means of banking, people are able to preserve an authentic rec- 
ord of their annual expenditure. If a person pays into his banker all the 
money he receives in the course of a year, and makes all his payments by 
checks, then by looking over his bank-book at the end of the year he will 
readily see the total amount of his receipts, and the various items of his 
expenditure. This is very useful to persons who have not habits of busi- 
ness, and who may therefore be in danger of living beyond their means. 
It is useless to advise such persons to keep an account of their expenses, 

6 



The Utility of Banking. 

they will do no such thing ; but when short of money at Christmas, to pay 
their tradesmen's bills, they may take the trouble of looking over their 
bank-book, and noticing how many checks were drawn for the purchase 
of unnecessary articles. A bank account is useful, also, in case of disput- 
ed payments. People do not always take receipts for money they pay to 
their tradesmen, and when they do, the receipts may become lost or mis- 
laid. In case of death, or of omission to enter the amount in the credit- 
or's books, the money may be demanded again. Should the payment 
have been made in bank notes or sovereigns, the payer can offer no legal 
proof of having settled the account ; but if the account was discharged by 
a check on a banker, the check can be produced, and the payment proved 
by the officers of the bank, who can be subpoenaed for that purpose. 

11. Another advantage resulting from keeping a banker in London is, 
that the party has a secure place of deposit for any deeds, papers, or other 
property that may require peculiar care. Any customer who pleases may 
have a tin box, which he may leave with his banker in the evening, and 
call for it in the morning. In this box he might place his will, the lease 
of his house, policies of insurance, or any other documents he wished to 
preserve against fire. Stock-brokers and others, who have offices in the 
city and live out of town, have such boxes, which they leave over night 
with their banker, for the sake of security, in preference to leaving them 
in their own office. If a party were going to the country, he might send 
his plate or jewellery to his banker, who will lock it up in his strong room, 
and thus it will be preserved from fire and thieves until his return. So- 
licitors and others, who have deeds or other writings of importance left in 
their custody, can send them to the bank during the night, and thus avoid 
the danger of fire. 

12. By keeping a banker, people have a ready channel of obtaining 
much information that will be useful to them in the way of their business. 
They will know the way in which bankers keep their accounts ; they will 
learn many of the laws and customs relating to bills of exchange. By 
asking the banker, or any of the clerks, they may know which is the 
readiest way of remitting any money they have to send to any part 
of the country or to the continent. If they have to buy or sell any stock 
in the public funds, the banker can give them the name of a respectable 
broker who can manage the business ; or should they be about to travel, 
and wish to know the best way of receiving money abroad, or be appoint- 
ed executors to a will, and have to settle some money matters, the banker 
will in these and many other cases be able to give them the necessary in- 
formation. 

13. Banking also exercises a powerful influence upon the morals of so- 
ciety. It tends to produce honesty and punctuality in pecuniary engage- 
ments. Bankers, for their own interest, always have a regard to the 
moral character of the party with whom they deal ; they inquire whether 
he be honest or tricky, industrious or idle, prudent or speculative, thrifty 
or prodigal, and they will more readily make advances to a man of moder- 
ate property and good morals, than to a man of large property but of in- 
ferior reputation. Thus the establishment of a bank in any place imme- 
diately advances the pecuniary value of a good moral character. There 

B 7 



A Treatise on Banking. 

are numerous instances of persons having arisen from obscurity to wealth, 
only by means of their moral character, and the confidence which that 
character produced in the mind of their banker. It is not merely by way 
of loan or discount that a banker serves such a person. He also speaks 
well of him to those persons who may make inquiries respecting him ; and 
the banker's good opinion will be the means of procuring him a higher 
degree of credit with the parties with whom he trades. These effects are 
easily perceivable in country towns ; and even in London, if a house be 
known to have engaged in gambling or smuggling transactions, or in any 
other way to have acted discreditably, their bills will be taken by the 
bankers less readily than those of an honorable house of inferior property. 
It is thus that bankers perform the functions of public conservators of 
the commercial virtues. From motives of private interest they encourage 
the industrious, the prudent, the punctual, and the honest, while they dis- 
countenance the spendthrift and the gambler, the liar and the knave. 
They hold out inducements to uprightness, which are not disregarded by 
even the most abandoned. There is many a man who would be deterred 
from dishonesty by the frown of a banker, though he might care but little 
for the admonitions of a bishop. 



Section III.— BANKING TERMS. 

Query I. — Is the word Bank a singular or a plural noun ? 

The word Bank, being a noun of multitude, may have verbs and pro- 
nouns agreeing with it in either the singular or the plural number, yet not 
without regard to the import of the term as conveying unity or plurality 
of idea. In the use of this term the following rules are usually ob- 
served : — 

1. When any operation or feeling of the mind is ascribed to a bank, 
the verbs and pronouns are placed in the plural ; as, " The bank were 
anxious to meet the wishes of the public." " The bank have concurred 
in the measure proposed." " Are you one of the persons who tried the 
question with the Bank of Ireland, whether they conceived themselves 
bound to pay in gold at their branches ? " " The Bank of England pe- 
titioned against this bill, and were heard by their counsel ; but their rep- 
resentations produced no effect, and the bill having passed through both 
Houses, received the Royal assent." The following examples, wherein 
mental operations are ascribed to a neuter pronoun, are violations of this 
rule : — " The bank allows the party having the cash credit, to liquidate 
any portion of his debt to the bank at any time that may suit his conve- 
nience, and reserves to itself the power of cancelling, whenever it shall 
think jit, the credit granted." " It is usual for the bank when it gives a 
cash credit to keep a watchful eye over the person having that cash 
credit." 

2. When a reference is made to a bank merely as an institution, the 
term is considered to belong to the singular ; as, " The Bank of Scotland 

8 



Banking Terms. 

continued the only bank from the date of its establishment, in 1695, to 
the year 1727. In that year a charter of incorporation was granted to 
certain individuals named therein for carrying on the business of banking, 
under the name of the Royal Bank ; and subsequent charters were grant- 
ed to this establishment, enlarging its capital, which now amounts to one 
million and a half." " The National Bank of Scotland has 1,238 part- 
ners." " If this measure be carried into effect, the Provincial Bank must 
instantly be deprived of any sufficient means of reimbursing itself for the 
heavy expense to which it has been subject." " Has your bank an es- 
tablishment at Kirkcudbright ? " " The Bank of England has the control 
of its issues entirely within itself." 

3. When we notice the rules or habitual acts of a bank, the word be- 
longs to the singular ; as, " The Provincial Bank allows interest at the 
rate of two per cent." u The bank draws bills upon London at twenty- 
one days after date." " The bank discounts bills at the rate of four per 
cent." " The bank issues notes payable in gold at the place of issue." 
" The London and Westminster grants interest upon deposits ; it does 
not allow its officers to receive Christmas presents from its customers." 
In reference to cases that fall under this rule, there is, however, some 
contrariety of practice: — " Do the Provincial Bank issue post bills? 
They do not." " Have the Bank of Ireland, at their branch in Cork, 
been in the habit of receiving gold to any amount in payments ? " 
" Have the Bank of Ireland any deposits at the Cork branch ? Do you 
know how their notes get into circulation ? Do they pay any interest on 
their deposits ? They have a great quantity of notes in circulation, — 
have they not ? " 

4. When the word bank is connected with a past participle by means 
of the neuter verb to be, it usually belongs to the singular ; as, " I am a 
director of the Bank of Scotland, which is established by act of Parlia- 
ment ; it does not hold a charter from the Crown, but, in common lan- 
guage, it is called a chartered bank." " Suppose a bank was enabled to 
take six per cent, on a cash credit, instead of four." " The Falkirk 
Union Banking Company has been returned to this house as sequestrated 
in the month of October, 1816." "A new bank was constituted as a 
fund upon which the sum of .£2,564,000 should be raised, and it was 
called the Land Bank because established on land securities." 

5. When the word bank is preceded by the indefinite article, a, an, — 
by the demonstrative pronoun, this, that, — or by the words each, any, 
every, one, it belongs to the singular ; as, " Do you not think that a bank 
that is possessed of a capital of one million may and will do more busi- 
ness than a bank that is only possessed of half a million ? " " In a mo- 
ment of pressure, an emergency like the present, that bank would get 
into great disrepute who called up any one of its cash credits." " What is 
the amount of the small note circulation in that bank as connected with 
its whole circulation ? " " Each bank has an interest to issue as much 
of the small note circulation as it can ? — Certainly it has, provided the 
small notes can be kept out ; but, as every bank makes an exchange at 
Glasgow twice every week, and the exchanges of each bank come back 
upon itself, and the balance is paid by a draft on Edinburgh at sight," 

9 



A Treatise on Banking. 

dec. "I believe almost every bank in Scotland has an agent in Glasgow.' 
M Suppose one bank in Scotland made its notes payable in Scotland, at 
the place where the notes were issued." " Is there any bank in Cork 
now that issues notes ? " 

6. When the word bank is introduced in either the singular or the 
plural number, the same number should be preserved throughout the sen- 
tence. Hence, the following sentence of Smollett's is inaccurate : — 
" By the same acts the bank was required to advance a sum not exceed- 
ing £ 2,500,000 towards discharging the national debt, if wanted, on con- 
dition that they should have £ 5 per cent, for as much as they might ad- 
vance, redeemed by Parliament." 

7. When the word bank is used in the singular number, it is consid- 
ered as a substantive of the neuter gender, and hence is associated with 
the relative pronoun which ; but when used in the plural number it im- 
plies the idea of persons, and has accordingly the personal relative who ; 
as, " The bank with which he kept his account has stopped payment " ; 
or, " The bank with whom he kept his account have stopped payment." 
" The bank whose interests are affected by the measure have petitioned 
against it." " The bank upon whom the cheque was drawn have refused 
to honor it." The following sentence is not in accordance with this rule : 
— " In a moment of pressure, an emergency like the present, that bank 
would get into great disrepute who called up any of its cash credits." 

I have not observed that any English writer, except Mr. McCulloch, 
considered a bank to be a lady ; and this is only in the case of an Irish 
bank. Under the article " Banking," in his Commercial Dictionary, he 
says, — " The Bank of Ireland draws on London at twenty days' date. 
She neither grants cash credits nor allows any interest on deposits ; she 
discounts at the rate of £ 5 per cent." This mode of expression is, how- 
ever, very common with American writers.* 

II. Should we write accepter or acceptor of a bill of exchange ? The 
name of the agent to any verb is usually formed, in our language, by the 
addition of r or er to the verb ; as, indorser, talker, walker, speaker. 
What reason, then, can be assigned why, in the present case, we should 
depart from the analogy of the language ? We do not say, the drawor, 
the holdor, the payor of a bill ; why, then, should we say the acceptor ? 
When we speak of the accepter of a bill, why should we not spell the 
word in the same way as when we speak of the accepter of a present, or 
of a fee ? Yet all our English legal authors write acceptor : — "A person 
who accepts for honor, is only liable if the original drawee do not pay ; 
and, to charge such acceptor, there must be a presentment for payment 
to such original drawee." — Bayley. " A foreign bill is binding in this 
country on the acceptor, though he accepted by parol, or by writing un- 
connected with the instrument." — Chitty. " Where the acceptor of a 
forged bill pays it, and is guilty of any negligence or want of due caution 
in making such payment, he cannot recover the money so paid, from the 
innocent party to whom he paid it." — Roscoe. Scotch authors, however, 

* It has now become more common with English writers, especially with reference 
to the Bank of England. 1849. 

10 



Banking Terms. 

write accepter. " An English inland bill has generally three parties to it, 
the drawer, accepter, and payee ; whereas, in Scotland most of the inland 
bills have, at first, but two parties, the drawer and the accepter ; and they 
are made payable to the drawer or his order." (See Glen, On the Law 
of Bills of Exchange in Scotland.) 

III. Shoald we write indorse or endorse ? Indorse is derived direct 
from the Latin, in dorsum, on the back. Endorse is derived from the 
Latin, through the French, endosser. In such cases, most writers adopt 
the Latin mode of spelling, in preference to the French, as indorse, in- 
quire, intire ; not endorse, enquire, entire. All legal authors write in- 
dorse. " A promise to indorse, though on sufficient consideration, cannot 
be treated as an actual indorsement." — Bayley. "The liability of the 
indorser is discharged by want of notice, as in the case of the drawer." 
— Roscoe. " A person who draws or indorses a bill, or indorses a note 
for the accommodation of the acceptor, or maker, or payee, or prior in- 
dorsers, has, on paying the instrument, a remedy over thereon against the 
acceptor, or maker, or prior party." — Chitty. " A drawer or indorser 
cannot, in the character of indorsee, maintain an action against the ac- 
cepter, where the indorsement is after the refusal of payment." — Glen. 

IV. Should we say indorsement or indorsation ? In England we al- 
ways use the word indorsement. " No particular words are essential to 
an indorsement ; the mere signature of the indorser is, in general, suffi- 
cient." — Bayley. " The indorsement may be upon the face, or at the 
back of the bill." — Chitty. u An attesting witness to an indorsement is 
necessary, when the bill is for a less sum than £ 5." — Chitty. In Scot- 
land the term more generally used is indorsation. " If a bill or note be 
granted to a woman while single, and she afterwards marry, the right to 
transfer it by indorsation would vest in the husband." " After a bill has 
been paid, no indorsation can take place, so as to affect the accepter, or 
any of the parties who would otherwise be discharged." — Glen. The 
word indorsement is also used in Scotland, though more rarely. Both 
words appear to have precisely the same meaning. An indorsation is 
made, either by the indorsees writing, and subscribing an order to pay 
the contents of the bill to some particular person mentioned by name, 
which is styled a. full indorsement, or by merely signing his name on the 
bill, and delivering it to the indorsee, or person to whom it is indorsed, 
which is termed a blank indorsation." — Glen. " A fictitious indorse- 
ment to a bill is forgery ; such indorsation is clearly giving it a false 
credit." — Glen. 

V. Should we say the presentment or the presentation of a bill of ex- 
change ? All writers agree in using presentment. " If upon the present- 
ment of the bill for acceptance to the drawee, he refuse or neglect to ac- 
cept it, the drawer is immediately responsible to the holder, although the 
bill has not become due according to its tenor." — Chitty. " If the bill 
be payable after sight, and the drawee detain it some days without declar- 
ing his intention to accept, and afterwards incline to do so, the acceptance 
must be from the date of the first presentment." — Glen. " Presentment 
for payment must be made by the holder of the bill, or by an agent com- 
petent to give a legal receipt for the money." — Glen. " Upon a present' 

11 



A Treatise on Banking. 

ment for acceptance, the bill should be left with the drawee twenty-four 
hours, unless in the interim he either accept, or declare a resolution not to 
accept. But a bill or note must not be left (unless it be paid) on a pre- 
sentment for payment ; if it be, the presentment is not considered as made 
until the money is called for." — Bayley. 

VI. Should we write draught or draft ? This word is aerrved from 
the verb to draw, and probably was originally written and pronounced 
drawght. But custom, which is the law of language, has changed both 
the pronunciation and the spelling to draft. In the former editions of this 
work, I mentioned that Mr. Justice Bayley had always spelled this word 
draught ; but in a recent edition of his work, since published, I find that 
draught has been changed to draft. 

VII. Should we write check or cheque ? This word is derived from the 
French, echecs, chess. The chequers placed at the doors of public-houses 
are intended to represent chess-boards, and originally denoted that the 
game of chess was played in those houses. Similar tables were employed 
in reckoning money, and hence came the expression, to check an account ; 
and the government office, where the public accounts were kept, was 
called the Exchequer. It probably obtained this name from the French 
echiquier, a chess-board ; though Blackstone states that this court was 
called the exchequer, from the chequered cloth which covered the table. 
Of the two forms of writing this word, check and cheque, the latter seems 
preferable, as it is free from ambiguity, and is analogous to ex-chequer, 
the public treasury. It is also used by the Bank of England, " Cheque- 
Office." In Bayley both forms are employed. " A cheque upon a 
banker was lost, and paid to a stranger the day before it bore date ; the 
banker was obliged to repay the money to the loser." " By the usage of 
trade, a banker in London will not render himself responsible by retaining 
a check drawn on him, provided he return it at any time before five o'clock 
on the evening of the day in which, it was drawn." 



Section IV. — THE GENERAL ADMINISTRATION OF A BANK. 

To be a good banker requires some intellectual and some moral qual- 
ifications. A banker need not be a man of talent, but he should be a man 
of wisdom. Talent, in the sense in which the word is ordinarily used, im- 
plies a strong development of some one faculty of the mind. Wisdom 
implies the due proportion of all the faculties. A banker need not be a 
poet or a philosopher, a man of science or of literature, an orator or a 
statesman. He need not possess any one remarkable quality by which he 
is distinguished from the rest of mankind. He will possibly be a better 
banker without any of these distinctions. It is only necessary that he 
should possess a large portion of that practical quality which is called com- 
mon sense. Banking talent (using the word talent here in the sense of 
adaptation of character to any particular pursuit) consists more in the 
union of a number of qualities, not in themselves individually of a striking 

12 



Administration of a Bank. 

character, but rare only in their combination in the same person. It is a 
mistake to suppose that banking is such a routine employment that it re- 
quires neither knowledge nor skill. The number of banks that have failed 
within the last fifty years are sufficient to show that to be a good banker 
requires qualities as rare and as important as those which are necessary 
to attain eminence in any other pursuit. The dealer in money exercises 
intellectual faculties of a high order, and of great value to the community. 
His profession has a powerful bearing on the practical happiness of man- 
kind. 

" The philosophy which affects to teach us a contempt of money, does not run very 
deep ; for, indeed, it ought to be still more clear to the philosopher than it is to the or- 
dinary man, that there are few things in the world of greater importance. And so 
manifold are the bearings of money upon the lives and characters of mankind, that an 
insight which should search out the life of a man in his pecuniary relations, would pen- 
etrate into almost every cranny of his nature. He who knows, like St. Paul, both how 
to spare and how to abound, has a great knowledge : for if we take account of all the 
virtues with which money is mixed up, — honesty, justice, generosity, charity, frugal- 
ity, forethought, self-sacrifice, — and of their correlative vices, it is a knowledge which 
goes near to cover the length and breadth of humanity : and a right measure and man- 
ner in getting, saving, spending, giving, taking, lending, borrowing, and bequeathing, 
would almost argue a perfect man." (Taylor's Notes on Life.) 

But though wisdom, — or, in other words, a high degree of common 
sense, — does not imply the possession of any remarkable talent (the un- 
due development of any one faculty), it always implies the absence of 
any remarkable defect. One great defect in a banker is a want of de- 
cision. A banker ought to know how to balance the evidence on each 
side of a question, and to arrive speedily at a just conclusion. 

" Indecisiveness will be, ceteris paribus, most pernicious in affairs which require se- 
crecy. 1st. Because the greatest aid to secrecy is celerity. 2d. Because the unde- 
cided man, seeking after various counsel, necessarily multiplies confidences. The pre- 
text for indecisiveness is commonly mature deliberation ; but, in reality, indecisive men 
occupy themselves less in deliberation than others; for, to him who fears to decide, de- 
liberation (which has a foretaste of that fear) soon becomes intolerably irksome, and 
the mind escapes from the anxiety of it into alien themes. Or, if that seems too open 
a dereliction of its task, it gives itself to inventing reasons of postponement. And the 
man who has confirmed habits of indecisiveness, will come in time to look upon post- 
ponement as the first object in all cases, and wherever it seems to be practicable, will 
bend all his faculties to accomplish it." * 

Another defect is a want of firmness. A banker having, after a mature 
consideration, made up his mind, should be capable of a strict adherence 
to his previous determination ; he should know when to say, No ; and 
having once said No, he should adhere to it. 

Another defect is a hasty or impetuous temper. 

11 He that answereth a matter before he heareth it, it is folly and shame unto him." 
" He that is slow to wrath is of great understanding, but he that is hasty of spirit ex- 
alteth folly." "A wise man will hear, and will increase learning; and "a man of un- 
derstanding shall attain unto wise counsels." (Proverbs of Solomon.) 

Another defect is that of being swayed by any personal or constitutional 
prepossession. Almost every man, — not excepting even the banker, — 

* Taylor's Statesman. I would advise all bankers, and all other persons at the head 
of large establishments, to read this little work. 

13 



A Treatise on Banking. 

has a sin by which he is most easily beset ; a constitutional defect, against 
which it is necessary he should be upon his guard. 

It is a great advantage to a banker, and indeed to every one else, tc 
know himself. He should know wherein he excels, and wherein he is de- 
ficient. He ought to know whether he is disposed from his temperament 
to be excessively cautious or excessively liberal ; whether his manners are 
courteous or abrupt ; whether he is apt to view matters on their gloomy 
or on their bright side ; whether social intercourse renders him more or 
less fit for his official engagements ; whether the presents and civilities he 
receives from his customers do, or do not, affect his transactions witk 
them in matters of business. When he has made a loss, he should ex^ 
amine whether the loss was occasioned by the ordinary operation of events, 
or produced by any little weaknesses of his own character. He should 
record all those instances in which he has shown a want of firmness, of 
discretion, of discrimination, or of perseverance ; and should guard in fu- 
ture against the exhibition of any similar defect : — 

" Man, know thyself ; all wisdom centres there." 

But while a banker should make himself acquainted with his own de- 
fects, he ought not to let his customers become acquainted with them. 
All wise men know their own defects ; none but fools publish them. 
Crafty men, who often have occasion to borrow money, are quick in per- 
ceiving the weaknesses of their banker. And if they find that by coaxing, 
or flattering, or gossiping, or bribing, or threatening, they can influence 
his conduct, he will always be at their mercy. On this account it is, per- 
haps, advisable that a banker should not have too much social intercourse 
with those of his customers who have occasion to ask him for any large 
amount of accommodation. 

Wisdom implies prudence and discretion, and these should regulate the 
whole conduct of a banker, not merely when engaged in banking transac- 
tions, but at all other times. We may apply to a banker the language we 
have- elsewhere applied to a merchant : — 

" The amusements of a merchant should correspond with his character. He should 
never engage in those recreations which partake of the nature of gambling, and but 
seldom in those of a frivolous description. A judge is not always on the bench, a 
clergyman is not always in the pulpit, nor is a merchant always on 'change ; but each 
is expected at all times to abstain from any amusements which are not consistent with 
his professional character. The credit of a merchant depends not merely on his wealth, 
but also upon the opinion generally entertained of his personal qualities; and he 
should cultivate a reputation for prudence and propriety of conduct, as part of his stock 
in trade." {Lectures on the History and Principles of Ancient Commerce, by J. W. 
Gilbart). 

A banker should have a talent for selecting suitable instruments. He 
ought not only to know himself; he ought also to have a capacity for 
knowing others. He should know how to choose proper clerks for the 
discharge of the duties of the office. He should know also what parties 
to employ to procure him confidential information as to the character and 
circumstances of commercial houses, or of individuals. He should know 
how to choose his partners or coadjutors, and should endeavour to select 
those who possess qualifications in which he is himself deficient. In all 

14 



Administration of a Bank. 

cases when he has any object to effect, he should know how to make use 
of other men. We may here, as in some other cases, apply to a banker 
the observations Mr. Taylor applies to a statesman : — 

" The most important qualification of one who is high in the service of the State is his 
fitness for acting through others, since the operations vicariously effected ought, if he 
knows how to make use of his power, to predominate greatly over the importance 
which can attach to any man's direct and individual activity. The discovery and use 
of instruments implies indeed activity, as well as judgment ; because it implies that 
judgment which only activity in affairs can give. But it is a snare into which active 
statesmen are apt to fall, to lose, in the importance which they attach to the immediate 
and direct effects of their activity, the sense of that much greater importance which 
they might impart to it if they applied themselves to make their powers operate 
through the most effective and the widest instrumentality. The vanity of a statesman 
is more flattered in the contemplation of what he does than of what he causes to be 
done ; although any man whose civil station is high ought to know that his causative 
might be beyond all calculation wider than his active sphere, and more important." 
(Taylor's Statesman.) 

A neglect of this rule has occurred in the history of some joint-stock 
banks, where the manager has impaired his own health, and damaged his 
bank, by taking upon himself a vast variety of duties which should have 
been assigned to others ; forgetful that in large establishments the chief 
officer should confine his personal attention to those duties which are in- 
tellectual, or which are of the chief importance ; while the duties which 
are of a mere manual, or less important character, should be performed 
through the instrumentality of assistants. We shall illustrate the principle 
of working through others by a Scriptural example : — 

" And it came to pass that Moses sat to judge the people ; and the people stood by 
Moses from the morning unto the evening. And Moses' father-in-law said unto him, 
The thing that thou doest is not good. Thou wilt surely wear away, both thou and 
this people that is with thee : for this thing is too heavy for thee ; thou art not able to 
perform it thyself alone. Hearken now unto my voice, and I will give thee counsel. 
Thou shalt provide out of all the people able men ; and place such over them, to be 
rulers of thousands, and rulers of hundreds, rulers of fifties, and rulers of tens. And 
let them judge the people at all seasons : and it shall be that every great matter they 
shall bring unto thee, but every small matter they shall judge ; so shall it be easier for 
thyself, and they shall bear the burden with thee. So Moses hearkened to the voice 
of his father-in-law, and did all that he had said." (Exodus xviii. 13-22.) 

' ; And Moses said, I am not eloquent, but I am slow of speech and of a slow 
tongue." — "Is not Aaron the Levite thy brother? I know that he can speak well. 
Thou shalt speak unto him, and put words into his mouth; and he shall be thy 
spokesman unto the people." (Exodus iv. 10-16.) 

A banker should know how to economize his own time. One mode oi 
doing this will be, as we have intimated, to assign inferior duties to 
others. His accountant should keep his books and make his calculations 
His secretary should write his letters (except those of a private or confi- 
dential nature), and he should only sign them. His chief clerk should 
attend to the discipline of the office. A banker at the head of a large 
establishment should not only be acquainted with the art of banking ; he 
ought also to be acquainted with the art of government. He ought to put 
a ciever man at the head of each department, and reserve to himself only 
the duty of general superintendence. He should give these parties a 
pretty wide discretion, and not encourage them to ask his instructions 
about matters of comparatively trifling importance. If he does this, they 

15 



A Treatise on Banking. 

will never learn to think for themselves, — never feel that wholesome 
anxiety which results from a sense of responsibility, — and never acquire 
that decision of mind which arises from the necessity of forming an inde- 
pendent judgment. Consequently, they will be less useful to him in their 
present position, and never become qualified for higher offices. 

Another mode of economizing time is to observe a principle of order. 
A banker should come to the bank every day at the same hour ; attend 
to his affairs, one by one, in the same order ; and leave the bank at his 
usual time. By observing this routine, he will not only save much time, 
but he will avoid tumultuous feelings, and maintain a calmness of mind 
and of manner, that will be useful in all his affairs. He will also acquire 
from habit, a coolness of investigation and a promptness of decision, and 
he will get through a great deal of work without ever appearing to be in 
a hurry. 

Another mode of economizing time is, to make his interviews with his 
customers, or with other parties, as short as he can. He should not en- 
courage conversation upon any other topic than that which is the occasion 
of the interview. He had better receive his customers standing ; as in 
that case they will stand too, and are not likely to remain so long as if 
they were to sit down. And the furniture of the room should be so ar- 
ranged that the customer, if he sit down, should sit near the door, so that 
he may depart whenever disposed. He is not likely to remain so long as 
if seated comfortably by the fireside. It is also desirable that his room 
should be so placed, with reference to the other parts of the building, that 
while it has one door open to the public, it should have another door 
opening into the office ; so that he may easily pass into the office, to as- 
certain the state of a customer's account, or to consult with himself or an- 
other person, in doubtful cases, as to the course to be adopted. It is not 
advisable that the customer who applies, for instance, to have a heavy bill 
discounted, should witness the hesitation or the deliberation of the banker. 
Hence it is better, when it can be done, to establish the practice of the 
customer giving the bills to a clerk, who shall bring them into the bank- 
er's room, and take back his reply. 

A banker will take means for obtaining and recording information. He 
should not, as we have said, keep any books himself; but he ought al- 
ways to have in his room, ready for immediate reference, if necessary, 
the " General Balance Book," containing the weekly balances of the gen- 
eral ledger, which will show the weekly progress of his business for sev- 
eral years past ; the " Daily Balance Book," showing the daily balance to 
the credit of each of his customers in the current-account ledger ; the 
" Weekly Discount Balance Book," showing the amount of discounts, loans, 
or other advances which each customer has every Saturday night ; the 
" Inspection Book," showing the amount of bills bearing the names of 
houses who do not keep an account with him ; the " Information Book," 
containing the character of all the houses about whom he has had occa- 
sion to make inquiries ; and, finally, a " Private Memorandum Book," in 
which is entered any special agreements that he has made with his cus- 
tomers. It is also useful to a banker to have a list of his customers, clas- 
sified according to their trades or professions ; such as corn merchants, 

16 



Administration of a Bank. 

ieamer factors, grocers, solicitors, &c, &c. The banker would thus see 
at a glance among what classes of society his connections are. When 
any public event was likely to affect any class, — such, for instance, as 
the corn merchants, — he would see how many of his customers are likely 
to be affected. By thus, too, bearing in mind the trade or profession of 
his customers, he would be able to judge more readily whether the bills 
they brought him for discount had arisen out of their business trans- 
actions. 

Of these books, one of the most important is the " Information Book." 
There is no doubt that a banker of great experience, and of a strong 
memory, may always bear in his mind a very correct estimate of the 
standing and character of all the houses that usually come under his 
notice. But this does not supersede the necessity for recording his in- 
formation in a book. His memory may fail, and that too on important 
occasions ; and certainly if he leave the bank for a short time, as he must 
sometimes have occasion to do, he will carry his memory with him. But 
if the Information Book be closely kept up, he will record his knowledge 
for the use of those who will have to take his place. It is no valid objec- 
tion to the keeping of such a book, to say that the position of houses is 
perpetually changing. Those changes should be recorded, so that their 
actual standing should always be readily referred to. If a banker is re- 
quested by a customer to make inquiry about a house, he should record 
the information he gets for his own guidance, in case any bills on that 
house should afterwards be offered him for discount. 

A banker will get information about parties from inquiry at their 
banker's, as we have mentioned at page 6. This information may be 
defective in two ways. In the first place, their banker may judge of 
them from the account they keep, — that is, from the balance to their 
credit, — and thus he may give too good an account of them ; or, sec- 
ondly, their banker may have an interest in keeping up their credit, and 
under this bias he may not give them so bad a character as they actually 
deserve. Another source of information is from parties in the same trade. 
Houses in the same trade know pretty well the standing of one another. 
Wholesale houses are well acquainted with the retail shopkeepers who 
buy of them. Most bankers have among their own customers some 
houses in almost every trade, who can give them any information re- 
specting other houses which they may require. The bills that pass through 
his hands will also often give him some useful hints respecting the parties 
whose names are upon them. 

It is of great importance to a banker to have an ample knowledge of 
the means and transactions of his customers. The customer, when he 
opens his account, will give him some information on this subject. The 
banker will afterwards get information from his own books. The amount 
of transactions that his customer passes through his current account will 
show the extent of his business. The amount of his daily balance will 
show if he has much ready cash. The extent and character of the bills 
he offers for discount, will show if he trust large amounts to individual 
houses, and if these are respectable. On the other hand, the bills his 
customer may accept to other parties, and his payments, will show the 

17 



A Treatise on Banking. 

class of people with whom he deals, or who are in the habit of giving him 
credit. But one main source of information is to see the man. This, 
like other means of information, will sometimes fail ; but, generally speak- 
ing, the appearance and manners of a man will show his character. Some 
people always send their clerk to the banker with bills for discount, <fcc. 
This is all very well, if they want no extraordinary accommodation ; but if 
they ask for any thing out of the usual way, the banker had better say that 
he wishes to see the principal. And if he had a doubt whether his cus- 
tomer was tricky or honest, speculative or prudent, let him be guided by 
his first impression, — we mean the impression produced by the first in- 
terview. In nine cases out of ten the first impression will be found to be 
correct. It is not necessary to study physiognomy or phrenology to be 
able to judge of the character of men with whom we converse upon mat- 
ters of business. 

A country banker has greater facilities than a London banker of ascer- 
taining the character and circumstances of other parties. In a country 
town every thing is known about every body, — a man's parentage and 
connections, his family and associates, the property he has already received, 
and what he may expect to receive from his relations, and, above all, his 
personal habits and disposition. Upon the last point we will make a short 
extract from an excellent series of " Letters to a Branch Manager," now 
in course of publication in the " Bankers' Magazine," under the signature 
of " Thomas Bullion." 

" Next in importance to a study of his accounts, the habits and character of a client 
are deserving of your attentive consideration. If a man's style of living, for example, 
becomes extravagant, and he gives himself over to excess, you cannot too promptly 
apply the curb, however regular the transactions upon his account may seem ; because 
years may elapse before mere irregularity of living will make any impression on his 
banking account ; whereas irregularity in business will exhibit itself immediately, and 
for this reason, — that whereas improvident habits of living involve a continuous waste 
in small sums, spreading over tolerably long periods, improvidence in business may 
involve in one fell swoop the loss, perhaps, of thousands. I hold, then, that you are 
not warranted in all cases in feeling satisfied of a man's perfect responsibility until his 
banking account exhibits indubitable evidence to the contrary." — Bankers' Magazine, 
December, 1848. 

A banker should always have general principles ; that is, he should 
have fixed rules for the government of his bank. He should know before- 
hand whether he will or will not advance money on mortgage, or upon 
deeds, or upon bills of lading, or warrants ; or whether he will discount 
bills based upon uncommercial transactions, or having more than three 
months to run. These are only a few of the cases in which a banker will 
find it useful to store his mind with general principles. 

One advantage of this adoption of general principles is, that it saves 
time. If a banker can say, in reply to a customer, " It is contrary to the 
rules of our bank to advance money upon bills of lading," the reply is 
conclusive. But if he had not previously adopted any rule upon the sub- 
ject, the reply would have taken up much more time. Another advantage 
is, that it gives decision of mind, and saves the banker from being " talked 
over " by any of his customers who may possess fluency of speech, or 
dexterity in debate. In this case, the banker whose mind is stored with 

18 



Administration of a Bank. 

general principles, though he may listen patiently to all his customer shall 
advance, will give the same reply which he would have given, had the ap- 
plication been made in fewer words. 

But although a banker ought to have a large stock of general princi- 
ples, — and this stock will increase as his experience increases, — yet it 
may not be always wise to explain these principles to his customer. It is 
generally best, when a banker gives a refusal, to give no reasons for that 
refusal. Banking science is so little understood that the public generally 
are unable to appreciate its principles. Besides, a man who wants to 
borrow money can never be convinced by reasoning that his banker is 
right in refusing to lend it to him ; nor, in fact, did the banker himself ac- 
quire his knowledge of banking by reasoning. He acquired it, not by 
reasoning, but by experience ; and he must not expect that his customers, 
who have had no experience, will, by reasoning alone, readily acquiesce 
in the banking principles he may propound to them. In most cases, 
therefore, he had better keep his reasons to himself. 

But while we contend that every banker should have^eneral principles, 
we do not say that in no possible case should he depart from them. But 
he should not look for such cases ; they are rare, and when they do occur 
they will force themselves upon his attention. If under shelter of the 
truism, " all rules have their exceptions," he departs from his general 
principles whenever he finds it convenient or profitable to do so, he may 
as well have no general principles at all. 

It seems desirable that a banker in a large city should mark out for 
himself one or two main branches of business, rather than attempt to 
carry on banking in all its branches. We see this line of conduct adopted 
by some of the most eminent London bankers. A west end banker will 
not discount a bill ; a city banker will not lend money on mortgage. 
Different kinds of banking exist in different parts of the country, accord- 
ing to the character and circumstances of the district. And in London 
there are numerous classes of people, and it may be both proper and ad- 
vantageous for a banker to adapt his mode of business chiefly to the re- 
quirements of some one particular class. Different banks may thus pur- 
sue different courses, and all be equally successful. 

A banker will exercise due caution in taking new accounts. He will 
expect the new customer to be introduced by some person to whom he is 
personally known. The more respectable the introducer, the higher 
opinion will the banker entertain of the party introduced. If a party ap- 
ply to open an account without such an introduction, he is asked to give 
references to some well-known houses. He is expected to state to the 
banker the kind of business in which he is engaged, and the extent of ac- 
commodation, if any, that he is likely to require. He will state the kind 
and character of the bills he will have to offer to discount, and mention 
any peculiarity in his business or circumstances that may occasionally re- 
quire especial consideration. It is a great folly in a party opening an ac- 
count to make any representation that will not afterwards turn out to be 
correct. Every banker is anxious to avoid taking shabby accounts ; and 
especially such as are opened for the purposes of fraud, or to obtain a fic- 
titious credit, or to get undue accommodation. It is considered to be not 

19 



A Treatise on Banking. 

advisable to take the account of a party who has another banker, especi- 
ally if he open the account for the purpose of getting additional discount. 
The object of a party keeping two bankers is, usually, to get as much ac- 
commodation as he can from each. If an account is brought from another 
bank, the reason of the removal should be distinctly stated, and the banker 
will accept or reject it, according to circumstances. It is bad policy in a 
banker to attempt to draw away the connections of another bank, by 
offering them greater accommodation. It is also usually bad policy to 
take the accounts of parties residing at a distance, as their transactions do 
not come under the notice of the banker ; and the fact of their passing by 
the banks in their neighbourhood to go elsewhere, is one that should ex- 
cite suspicion. It is not advisable for London bankers to take the ac- 
counts of private individuals who reside in the country. They should be 
referred to the bankers in their own districts. 

A small banker should not attempt to take large accounts. Banks, 
otherwise well administered, have been ruined by one large account. If 
this account requires accommodation, it will absorb the banker's funds, so 
that he will be compelled to stint his other customers, or to have recourse 
to re-discount, or other modes of raising money. Even if it be only a 
deposit account, it may produce inconveniences. A small banker cannot 
so readily employ this large deposit profitably, and yet have it at com- 
mand whenever required ; and the additional amount he must keep in his 
till will be proportionably greater than would be kept by a large banker. 
Thus, if £ 100,000 be placed in a bank that has already £2,000,000 of 
deposits, the additional sum kept in the till to meet daily demands may 
not be much increased ; but should it be lodged with a banker whose de- 
posits are only £ 300,000, {he increase of notes to be kept in his till will 
be very considerable. This shows that large deposits are not so profitable 
to small banks as to large ones. There is also a danger that a small 
banker will employ his large deposits in such a way as shall render him 
less ready to repay them punctually. Instances have occurred of small 
banks being greatly inconvenienced by the repayment of large deposits, 
which had been placed in their hands by railway companies. It is pru- 
dent, therefore, in a banker to apportion the amount of his transactions to 
the extent of his business. 

A very important part of the business of a banker consists in the dis- 
counting of bills. The bills presented to a bank for discount, may gener- 
ally be divided into the following classes : — 

" 1st. Bills drawn by producers or manufacturers upon wholesale 
dealers. 

" 2dly. Bills drawn by wholesale dealers upon retail dealers. 

" 3dly. Bills drawn by retail dealers upon consumers. 

" 4thly. Bills not arising out of trade, but yet drawn against value, as 
rent, &c. 

" 5thly. Kites, or accommodation bills. 

" The first two classes of bills are the best, and are fair legitimate bills 
for bankers to discount. 

" The third class ought not to be too much encouraged ; they are for 
comparatively small amounts, and are drawn by shopkeepers and trades- 

20 



Administration of a Bank. 

men upon their customers. To discount these bills freely would encour- 
age extravagance in the accepters, and ultimately prove injurious to the 
drawers. When a man accepts bills to his butcher, baker, tailor, uphol- 
sterer, &c., he may fairly be suspected of living beyond his income. 
Solvent and regular people pay their tradesmen's accounts with ready 
money. 

" The fourth class of bills, though sometimes proper, ought not to be 
too much encouraged. Persons out of trade have no business with bills. 

" The last class of bills should always be rejected. To an experienced 
banker, who knows the parties, the discovery of accommodation bills is 
by no means difficult. They are usually drawn for even amounts, for 
the largest sum that the stamp will bear, and for the longest term that the 
bank will discount, and are presented for discount soon after they are 
drawn. The parties are often relations, friends, or parties who, from 
their avocations, can have no dealings with each other. 

u Not only the parties and the amounts of bills are matters of consider- 
ation to a banker, but also the time they have to run before they fall due. 
A bill drawn for a long term after date, is usually styled, not perhaps very 
properly, ' a long dated bill.' A bill drawn at a short term, is styled, t a 
short dated bill.'" (History and Principles of Banking, p. 167.) 

In doubtful cases, the banker, before discounting a bill, will probably 
look through his books, and satisfy himself with regard to the following 
inquiries : — 

What is the character of the customer ? This inquiry will be answered 
from the Information Book. What is the usual balance of his cash ac- 
counts ? This will be answered by the Daily Balance Book. What 
amount has he now under discount ? This will be answered from the 
Discount Ledger, and will suggest other inquiries. Is that amount greater 
or less than usual ? What proportion does that amount bear to the aver- 
age amount of his cash balance ? Is the amount chiefly upon few parties, 
or is it divided among a number ? Have their bills been discounted 
chiefly upon the strength of the customer, or upon the strength of other 
parties ? Are his bills generally paid ? He will then proceed to inquire 
about the other parties to the bill. What is the character of the accepter 
in the Information Book ? What is the nature of the transactions between 
the customer and the accepter, as far as can be ascertained ? Has he 
had any bills upon him before, and have they been punctually paid ? 
Are there any bills upon him now running, and how soon will they be- 
come due ? 

In the discount of bills it is necessary to guard against forgeries. It 
has happened that parties carrying on a great business in London, have 
presented to their banker, for discount, bills drawn upon all parts of the 
country ; which bills, upon inquiry, have turned out to be purely fictitious. 
This is an additional reason for bankers making inquiry about the accep- 
ters of the bills they discount, even when they think they have reason to 
be satisfied with the drawers. Even this is no protection against forgery. 
Sometimes the name of a most respectable house in a provincial town has 
been forged. Where the amount is large, therefore, it seems advisable to 
send the bill down to some banker in the town, and ask his opinion as to 

21 



A Treatise on Banking. 

the genuineness of the signature. Of course in these, and many othei 
cases in which a banker is liable to be cheated, much must depend upon 
personal discretion ; no rules can be given for all cases. 

To facilitate the detection of forged cheques, it is advisable that the 
banker should have a printed number placed on every cheque, in every 
cheque book, and keep a record of the name of the customer to whom 
each book is given. When a cheque with a forged signature appears, the 
banker can theu turn to this registry, and see to which of his customers 
he had given out this cheque. This plan has been found useful in tracing 
forgeries that have been perpetrated by the clerks or servants of the party 
keeping the account. Some bankers, moreover, place on their cheque 
books a printed label, requesting the customer will at all times keep the 
book under his own lock and key. 

To guard against forgery in the case of deeds or bonds, all these docu- 
ments should be witnessed by an officer of the bank. And when a letter 
of guarantee is given by a third party, it should not be taken by the 
banker from the party in whose favor it is given, but the letter should be 
signed at the bank, and the signature witnessed by one of the clerks. 

A banker is also liable to loss from the alteration of cheques. The 
words six, seven, eight, and nine, can easily be changed by the addition 
of y, or ty, into sixty, seventy, eighty, or ninety. Sometimes, too, when 
cheques are drawn for less than £ 10, if a space be left open before the 
word, another word may be introduced. Thus, a short time ago a cheque 
was drawn on a banker for £ 3, and the party who obtained it wrote the 
word sixty before the word three, and thus cheated the banker out of 
£ 60. Letters of credit, as well as cheques, have heretofore been altered, 
by the original sum being taken out, and a larger sum being substituted. 
This is now prevented by staining the paper with a chemical preparation. 
Countiy banks also stamp upon their drafts the words " under ten pounds," 
" under twenty pounds," and so on, to prevent an alteration to any sum 
beyond those amounts. 

The re-discounting of bills of exchange is an operation of much im- 
portance, and has a great influence on the monetary operations of the 
country. We quote from a former work of our own upon this subject : — 

" Banks situated in agricultural districts have usually more money than they can 
employ. Independently of the paid-up capital of the bank, the sums raised by circula- 
tion and deposits are usually more than the amount of their loans and discounts. 
Banks, on the other hand, that are situated in manufacturing districts, can usually em- 
ploy more money than they can raise. Hence, the bank that has a superabundance of 
money, sends it to London, to be employed by the bill-brokers, usually receiving, in re- 
turn, Mils of exchange. The bank that wants money sends its bills of exchange to 
London, to be re-discounted. These banks thus supply each other's wants, through 
the medium of the London bill-brokers." (The History of Banking in America^ by 
J. W. Gilbart) 

But this principle of the re-discount of bills has been, in some cases, 
grossly abused, by being employed to give a sort of vitality to dead loans. 
A country banker lends upon mills and manufactories a larger amount of 
money than he can conveniently spare ; then he asks the manufacturer to 
accept a bill for the amount, which the banker gets discounted in London 
or elsewhere. This bill, when due, is renewed, and the renewal is again 

22 



Administration of a Bank. 

replaced by another, and so the game goes on. As long as money is 
abundant all parties are pleased ; the manufacturer gets his advance, the 
banker gets his commission, and the London bill-broker gets employment 
for his funds. But a pressure comes. The London bill-broker can dis- 
count no more, because the funds placed in his hands by his depositors 
have been withdrawn. The banker cannot get the new bills discounted 
elsewhere, and is unable to take up the old bills that are returned to him 
with his indorsement. The manufacturer, of course, cannot pay the 
money; the banker stops payment, and the manufacturer is ruined. 
The places at which this system has been chiefly carried on, are Man- 
chester and Newcastle-upon-Tyne; and it is in these places that the 
greatest failures have taken place among the joint-stock banks. In fact, 
I believe it must be confessed, that the joint-stock banks have carried on 
this practice to a much greater extent than it was ever carried on by the 
private bankers. This has arisen from the greater credit which they pos- 
sessed : it is one of the forms of the abuse of credit. 

A London banker is always anxious to avoid dead loans. Loans are 
usually specific advances for specified times, either with or without 
security. In London, advances are generally made by loans ; in the 
country, by overdrafts. The difference arises from the different modes 
of conducting an account. In London, the banker is paid by the balance 
standing to the credit of the account. A customer who wants an ad- 
vance, takes a loan of such an amount as shall not require him to keep 
less than his usual balance. The loan is placed to the credit of his cur- 
rent account, until the time arrives for its repayment, and then he is 
debited for the principal and the interest. The country banker is paid 
by a commission, and hence the advance to a customer is made by his 
overdrawing the account, and he is charged interest only on the amount 
overdrawn. 

Loans are divided into short loans and dead loans. Short loans are 
usually the practice of the London bankers : a time is fixed for their ra- 
payment. Dead loans are those for the payment of which there is no 
specified time ; or where the party has failed to make the repayment at 
the time agreed upon. In this case, too, the loan has usually been made 
upon dead, — that is, upon inconvertible, security. Without great caution 
on the part of the banker, short loans are very apt to become dead loans. 
A loan is first made for two or three months ; the time arrives, and the 
customer cannot pay ; then the loan is renewed, and renewed, and re- 
newed, and ultimately the customer fails, and the banker has to fall back 
upon his securities. The difference between short loans and dead loans 
may be illustrated by a reference to Liverpool and Manchester. The 
Liverpool bankers make large advances by way of loan, but usually on 
the security of cotton. The cotton is sold in a few months, and the 
banker is paid. At Manchester, the banker advances his loans on the 
security of mills and manufactories ; he cannot get repaid ; and after 
awhile the customer fails, and the mill or manufactory, when sold, may 
not produce half the amount of the loan. 

Dead loans are sometimes produced by lending money to rich men. 
A man of moderate means will be anxious not to borrow of his banker a 
C 23 



A Treatise on Banking. 

loan which he will not be able punctually to repay, as the good opinion 
of his banker is necessary to his credit. But a man of property has no 
scruples of the kind ; he has to build a house, to improve his estate, or to 
extend his manufactory ; and he is unreasonable enough to expect that his 
banker will supply him with the necessary funds. He believes it will be 
only a temporary advance, as he will shortly be in possession of ample 
means. The banker lends the sum at first desired ; more money is want- 
ed ; the expected supplies do not arrive, and the advance becomes a dead 
lock-up of capital. The loan may be very safe, and yield a good rate of 
interest, but the banker would rather have the money under his own con- 
trol. 

Dead loans are sometimes produced by lending money to parties to buy 
shares in public companies. There was too much business of this kind 
transacted by some bankers a few years ago. The party did not at first, 
perchance, apply to his banker to enable him to purchase the shares ; but 
the calls were heavy, and his ready money was gone ; he felt assured, 
however, that in a short time he should be able to sell his shares at a high 
profit ; he persuaded his banker to pay the calls, taking the shares as se- 
curity. Other calls were made, which the banker had to pay. The 
market fell, and the shares, if sold, would not pay the banker's advances. 
The sale, too, would have caused an enormous loss to the customer. The 
advances became a dead loan, and the banker had to wait till a favorable 
opportunity occurred for realizing his security. 

In this, and in other ways, a banker has often much difficulty with cus- 
tomers of a speculative character. If he refuse what they ask, they re- 
move their account, and give him a bad name ; if he grant them their de- 
sires, they engage in speculations by which they are ruined, and probably 
the banker sustains loss. The point for the banker to decide is, whether 
he will lose them or ruin them. It is best, in this case, for the banker to 
fix upon what advance he should make them, supposing they conduct 
their affairs prudently ; and if they are dissatisfied with this, he had better 
let them go ; after they have become bankrupts he will get credit for his 
sagacity. 

The discounting of bills is an ordinary matter of business, and the 
banker has only to see that he has good names to his bill ; but in regard 
to loans, a banker would do well to follow the advice which Mr. Taylor 
gives to individuals, and not make a loan, unless he knows the purpose for 
which it is borrowed, and to form his own judgment as to the wisdom of 
the party who borrows, and as to the probability of his having the means 
of repayment at the time agreed upon. 

" Never lend money to a friend, unless you are satisfied that he does wisely and well 
in borrowing it. Borrowing is one of the most ordinary ways in which weak men 
sacrifice the future to the present ; and thence it is that the gratitude for a loan is so 
proverbially evanescent ; for the future, becoming present in its turn, will not be well 
pleased with those who have assisted in doing it an injury. By conspiring with your 
friend to defraud his future self, you naturally incur his future displeasure. To with- 
stand solicitations for loans is often a great trial of firmness ; the more especially as 
the pleas and pretexts alleged are generally made plausible at the expense of truth ; 
for nothing breaks down a man's truthfulness more surely than pecuniary embarrass- 
ment, — 

24 



Administration of a Bank. 

'An unthrift was a liar from all time; 
Never was debtor that was not deceiver.' 

The refusal which is at once the most safe from vacillation, and perhaps as little apt 
to give offence as any, is the point blank refusal, without reasons assigned. Acquies- 
cence is more easily given in the decisions of a strong will than in reasons, which weak 
men, under the bias of self-love, will always imagine themselves competent to contro- 
vert." (Notes on Life, by John Taylor.) 

Sometimes, when an advance of money is wanted for two or three 
months, the party gives a note of hand. This is better than a mere loan, 
as it fixes the time of payment, and keeps the transaction fresh in the rec- 
ollection of the borrower. But care must be taken that the note, by re- 
peated renewals, does not in fact become a dead loan. Hence, when a 
renewal cannot be avoided, attempts should be made to reduce the amount. 
When public companies, of only a short standing, and not fully constituted, 
wish to borrow money of their banker, it is sometimes expedient to take 
the joint and several promissory note of the directors. By this means the 
banker avoids all knotty questions connected with the law of partnership ; 
and the directors will, for their own sakes, see that the funds of the com- 
pany shall, in due time, be rendered available for the repayment of the 
loan. 

We have said that dead loans are usually advanced upon inconvertible 
security. Sometimes that security consists of a deposit of deeds relating 
to leasehold or freehold property. In London, however, this kind of se- 
curity is not considered desirable, and the following rules are usually ob- 
served. 

No advances are made upon the security of deeds alone ; they are 
taken only as collateral security, and then only to cover business transac- 
tions, and in cases where the parties are supposed to be safe independently 
of deeds. 

The value of the property should be much higher than the sum it is in- 
tended to guarantee. When this is the case, and the parties fail, their 
creditors may take the deeds and pay the debt due to the bank. The 
main use of taking deeds is to have something to fall back upon in this 
way. A customer should never receive more accommodation from hav- 
ing deposited his deeds than that to which he is legitimately entitled. No 
banker takes deeds if there is the slightest probability of his being com- 
pelled to realize the property, as the legal difficulties are very great 

In all cases in which deeds are taken, they are submitted to the inspec- 
tion of the banker's solicitor, who makes a written report upon the value 
of the property, as far as it can be discovered by the deeds, and upon its 
legal validity as a security to the bank. 

The rule of a banker is, never to make any advances, directly or indi- 
rectly, upon deeds, or any other dead security. But this rule, like all other 
general rules, must have exceptions, and when it is proper to make an ex- 
ception is a matter that must be left to the discretion of the banker. He 
should, however, exercise this discretion with caution and prudence, and 
not deviate from the rule without a special reason to justify such devia- 
tion. 

Among country bankers, in agricultural districts, advances upon deeds 

25 



A Treatise on Banking. 

are not considered so objectionable as in London. A landed proprietor 
who wants a temporary advance places his deeds in the hands of his 
banker, and takes what he requires. The banker thinks he can have no 
better security ; but the loan is usually for only a moderate amount, and 
is paid off within a reasonable time. In the country the character and cir- 
cumstances of every man is known. A landlord who wants an advance 
to meet immediate demands, until his rents come in, seems fairly entitled 
to assistance from his banker. But should a landlord who is living be- 
yond his income ask for an advance almost equal to the value of his 
deeds, he would not be likely to obtain it. Every banker is aware that 
when deeds are lodged as security for loans, or discounts of any kind, in- 
terest upon the advance cannot be charged at a higher rate than five per 
cent. 

Another kind of security is bills of lading, and dock warrants. Ad- 
vances upon securities such as these must be considered as beyond the 
rules which prudent bankers lay down for their own government ; they 
can only be justified by the special circumstances of each case. In ad- 
vancing upon bills of lading, the banker must see that he has all the hills 
of the set ; for if he has not aZZ, the holder of the absent bill may get pos- 
session of the property. It is also necessary that he have the policy 
of insurance, that, in case the ship be lost, he may claim the value from 
the insurers. In advances upon dock warrants, the banker should know 
that the value of the goods is equal to his advances, and will also give 
him a margin, as a security against any fall in the market price. But, in 
truth, no banker should readily make advances upon such securities. 
Now and then he may take them as collateral security, for an advance 
to a customer who is otherwise respectable ; but if a customer requires 
such advances frequently, not to say constantly, it shows that he is con- 
ducting his business in a way that will not ultimately be either for his own 
advantage or that of his banker. 

A banker should never make any advances upon life policies. They 
may become void, should the party commit suicide, or die by the hand of 
justice, or in a duel ; or if he go without permission to certain foreign 
countries. The payment may be disputed, upon the ground that some 
deception or concealment was practised when the policy was obtained. 
And, in all cases, they are dependent upon the continued payment of the 
premiums. The value of a policy, too, is also often overrated. The in- 
sured fancies that his policy increases in value in exact proportion to the 
number of premiums he has paid ; but if he offers it to the company, he 
will find that he gets much less than he expected. The policy is valued 
in a way that remunerates the office for the risk they have run during the 
years that are past ; and the valuation has a reference only to the future. 
Thus, if a man at twenty years of age insures his life, the expectation, or 
probability of life, as it is called, that is, the number of years he is likely 
to live upon the general average, is, according to the Northampton tables, 
thirty- three. If he wishes his representatives to receive £ 1,000 at his 
death he will pay a proportionate annual premium. When forty years of 
age, he will have paid twenty premiums, and he may fancy that his pol- 
icy is worth the total amount of the premiums. But the policy is valued, 

26 



Administration of a Bank. 

not with reference to the past, but with reference to the future. At forty 
years of age his " expectation of life " is not thirteen, but twenty-three 
years. It is then calculated that twenty-three years hence the policy will 
be entitled to £ 1,000 ; but that the annual premiums must be paid in the 
mean time. The value of the policy, therefore, is the present value of 
this £ 1,000, less the present value of all these annual payments. Should 
he wish to sell his policy when he is sixty years of age, he will find that 
it is proportion ably less valuable, for his expectation of life will still be 
thirteen years. A short rule for ascertaining the expectation of life, ac- 
cording to the Northampton tables, is to take the age from the number 
eighty-six, and then divide by two. The value of a policy is generally 
about one third of the amount of all the premiums that have been paid. 

There are certain signs of approaching failure, which a banker must 
observe with reference to his customers. Thus, if he keep a worse ac- 
count than heretofore, and yet wants larger discounts, — if the bills of- 
fered for discount are drawn upon an inferior class of people, — if, when 
his bills are unpaid, he does not take them up promptly, — if he pays in 
money late in the day, just in time to prevent his bills or cheques being 
returned through the clearing ; but, above all, if he is found cross-firing, 
that is, drawing bills upon parties who at the same time draw bills upon 
him ; as soon as a banker detects a customer in fair credit engaged in 
this practice, he should quietly give him reason for removing his account. 

Sometimes two parties, who keep different bankers, will adopt a prac- 
tice of exchanging cheques. Their cheques are paid into the banks too 
late to be cleared on the same day ; and hence the parties' accounts ap- 
pear better the next day than they otherwise would be. Some failing 
parties, too, have recourse to forged or fictitious bills, which they put into 
circulation to a large amount. The best way for a banker to guard 
against loss from this practice is, to inquire in all cases about the accept- 
ers of the bills that he discounts, not only when his customers are doubt- 
ful, but even when they are deemed respectable. Indeed, it is only peo- 
ple in good credit that can pass fictitious bills. 

The banker's rule is, that they who have discounts must keep a propor- 
tionate balance ; this is useful, as the amount of balance kept is an indi- 
cation of the circumstances of the party. When a customer has heavy 
discounts, and keep but a small balance, it may usually be inferred that 
he is either embarrassed in his affairs, or he is trading beyond his capital. 

The operation which is called u nursing an account," sometimes re- 
quires considerable prudence, tact, and perseverance. A banker, having 
made considerable advances to a customer, suddenly discovers that the 
party is not worthy of the confidence he has placed in him. If these ad- 
vances should be called up or discontinued, the customer will break, and 
the banker sustain loss. The banker must be governed by the circum- 
stances of each case. It is sometimes best to continue to discount the 
good bills, and refuse those of a different character ; and thus gradually 
weed the account of all the inferior securities. Sometimes he may get 
the customer to stipulate that he will diminish his advances by certain 
fixed amounts, at certain periods ; and thus, by alternately refusing and 
complying, the banker mav at length place himself in a state of security 

27 



A Treatise on Banking. 

At other times, the banker may offer to make still further advances, on 
condition of receiving good security also for what has been already ad- 
vanced. This plan is advisable when the additional advance is not pro- 
portionately large, and the security is not inconvertible, otherwise the 
plan is somtimes a hazardous one. It requires some courage to look a 
loss in the face. And it has occurred that a banker, rather than sustain a 
small loss, will consent to make a further large advance upon incon- 
vertible security ; and the locking up of this large advance for an indefi- 
nite period has proved the greater evil of the two. In fact, some of the 
largest losses of fallen banks have been made in this way. They have, 
in the first instance, made an imprudent advance ; rather than sustain this 
loss at once, they have made a further advance, with a view to prevent it. 
The advance has at last become so large, that if the customer falls the 
bank must fall too. For the sake of self-existence, further advances are 
then made ; these, too, are found ineffectual, and ultimately the customer 
and the bank fall together. 



Section V. — THE ADMINISTRATION OF A BANK WITH RE 
GARD TO PROCEEDINGS ON BILLS OF EXCHANGE. 

When a banker has discounted a bill, it is handed to the accountant 
who will see that it is drawn on a right stamp. The accountant will read 
it through, and see that it is properly drawn, and will observe that the sum 
in writing corresponds with the sum expressed in figures, and that no 
alteration has taken place in the amount, the date, the term, or the place 
at which it is made payable ; for these are material alterations, and would 
affect the validity of the bill. He will then calculate the time at which it 
falls due, and place this date upon the bill, or, if it was there before, he 
will check it, and see that it is right. He will then turn it over and see 
that it is indorsed by the party in whose favor it is drawn, and also that 
the subsequent indorsements are regular and properly spelled ; for if there 
be a variation of a single letter in the spelling of a name, the payment of 
the bill could not be legally enforced. He will also observe that the bill 
is indorsed by the party for whom it is discounted. He will then pass the 
bill through the books (these books are described in the section on Bank- 
ing Book-keeping), and at the close of the day deliver it with the others 
to the banker. The banker will, on the following morning, put these bills 
away in his bill-case according to the dates at which they fall due. This 
point should be recollected by persons who have to get bills from a banker 
before they are due ; for, after they have given the amount and the names, 
the next question asked them will be, " When is it due ? " for, among a 
multitude of bills, the only way of readily finding any individual bill is to 
turn to those that fall due on the same day. Every day the banker looks 
out the bills that fall due on the following day, and hands them to the 
chief clerk (or, in some cases, the chief clerk himself has the charge of 
the bills), who, after checking them against the books, distributes them 

28 



Bills of Exchange. 

among the clerks who are to collect them. If the bill be not paid, it is 
noted on the same evening, and on the following morning returned to the 
customer for whom it was discounted, and his account is debited for the 
amount. But if the party has not the sum to his credit, and the banker 
does not like to trust him, he merely receives notice of its dishonor ; and 
notice is also given to every other party to the bill, with a demand for 
immediate payment. The bill has now become that hated object, a 
" past due bill " ; and after a while, if the parties are supposed to be . 
" worth powder and shot," it is handed to the bank's solicitor. 

I shall give a short description of Bills of Exchange, and notice a few 
of those points of law and of business which are of most importance to 
practical bankers. 

A bill of exchange is a written order from one person to another, direct- 
ing him to pay a sum of money either to the drawer or to a third person 
at a future time. This is usually a certain number of days, weeks, or 
months, either after the date of the bill, or after sight ; that is, after the 
person on whom it is drawn shall have seen it, and shall have written on 
the bill his willingness to pay it. The party expresses this willingness by 
writing on the bill the word " accepted," and his name. If the bill be 
drawn after sight, he also writes the date of the acceptance. 

If the party in whose favor the bill is drawn wishes to transfer it, he 
writes his name on the back. This is called an indorsement ; and may 
be either special or general. A special indorsement is made to a par- 
ticular party ; as, " Pay to Messrs. John Doe & Co. or order." A general, 
or blank indorsement, is when the person merely writes his name. It 
is held by the lawyers (see Chitty on Bills of Exchange, p. 103) that a 
special indorsement cannot follow a general indorsement, and that in such 
a case the holder may sustain an action for the amount, though the bill be 
not indorsed by the party to whom it is thus specially assigned. In prac- 
tice, however, this is very common ; and bankers always refuse to pay 
bills not properly indorsed, even though previous indorsements may be 
general. But, in regard to post bills, the Bank of England pays no regard 
to any special indorsement that may follow a general indorsement. 

The following is the form of a Bill of Exchange : — 

£ 1 ,000. London, 1 st of Mai/, 1827. 

Two months after date, pay to the order of Messrs. Quick, Active, fr Co. (or 
me or my order) the sum of One Thousand Pounds, for value received. 

Hearty, Jolly, Sr Co. 

Accepted, payable at 
To Messrs. John Careful fr Co., Messrs. Steady Sf Co., Bankers. 

Southicark. John Careful Sf Co. 

A Promissory Note is as follows : — 

£1,000. London, 1st of May, 1827 . 

Two months after date, we promise to pay Messrs. Hearty, Jolly, Sf Co., or their 
order, the sum of One Thousand Pounds, for value received. 

John Careful Sf Co. 
At Messrs. Steady Sf Co., Bankers, 
Lombard Street. 

The acceptance is usually written across a bill, but should always be on 

29 



A Treatise on Banking. 

the front, not on the back of the bill. An indorsement, as the name im- 
plies, should be placed on the back. 

The person who draws a bill is called the drawer ; the person on whom 
it is drawn is called the drawee ; after the bill is accepted the drawee is 
called the accepter. The person who indorses a bill is called the indorser ; 
the person to whom it is indorsed is the indorsee. The person who pays 
a bill is the payer ; the person to whom it is paid is the payee. These and 
similar terms may be illustrated by a circumstance said to have occurred 
on the cross-examination of a witness, on a trial respecting a mortgage. 
Counsellor, " Now, Sir, you are a witness in this case ; pray do you 
know the difference between the mortgager and the mortgagee ?" Wit- 
ness, " To be sure I do. For instance, now suppose I nod at you, I am 
the nod-er, and you are the nod-ee." The word discountee, denoting the 
person for whom a bill is discounted, is not used in England, but I observe 
in the parliamentary evidence that it was employed by some of the wit- 
nesses from Scotland 

All bills, except those payable on demand or at sight, are allowed three 
days' grace. Thus, a bill drawn at two months from the 1st of May will 
fall due on the 4th of July ; but, if that day be a Sunday or a public holi- 
day, the bill will be due on the day before. Some bills, instead of being 
drawn after date or sight, state the time of payment, as " On the first of 
August pay, &c." These bills are allowed the usual three days of grace. 
Such a bill would fall due on the 4th of August. 

To remove all doubts upon this subject, an act of Parliament was passed 
(7th and 8th Geo. IV. ch. 5), which enacts, " that from and after the tenth 
day of April, one thousand eight hundred and twenty-seven, Good Friday, 
and Christmas-day, and every day of fast or thanksgiving appointed by 
his Majesty, is and shall for all purposes whatever, as regards bills of ex- 
change and promissory notes, be treated and considered as the Lord's- 
day, commonly called Sunday." This act does not extend to Scotland, 
but it has since been extended to Ireland. This act does not vitiate a bill 
dated on a Sunday. 

Some parties, when they indorse a bill, write at bottom, " In case of 
need apply to Messrs. C. D. & Co." That is, if the bill be not paid when 
due, Messrs. C. D. & Co. will, on the day after it is due, pay it for the 
honor of the indorsers. The notaries always observe the " cases of need " 
upon the bills that come into their hands, and apply to the proper parties. 
The advantage of placing a case of need upon a bill is, that the party in- 
dorsing it receives it back sooner in case of non-payment. It also makes 
the bill more respectable, and secures its circulation. 

Were it not for the space it occupies, it would be very desirable that 
the indorser of a bill of exchange should be compelled to state also his ad- 
dress. This would prevent forged and fictitious indorsements, and give a 
banker who discounts a bill a better opportunity of ascertaining the re- 
spectability of the parties. In case, too, the bill was unpaid, he might 
immediately apply to all the indorsers, whereas now he has to find them 
out in the best way he can. The indorsers and drawer of a bill would 
have earlier notice of its non-payment, and have a better opportunity of 
obtaining their money from the antecedent parties. 

30 



Bills of Exchange. 

Bills are divided into Inland and Foreign. Inland bills are those in 
which both the drawer and the accepter reside in England. Bills drawn 
from Scotland or Ireland are considered as foreign bills. If a foreign bill 
be refused acceptance or payment, it should be immediately protested and 
returned. An inland bill is only noted, and then only when refused pay- 
ment. A foreign bill may be accepted verbally, or by letter ; but no ac- 
ceptance of an inland bill is valid, unless written upon the bill itself. 

When a merchant in one country draws bills upon a merchant residing 
in another country, he usually draws them in sets ; that is, he draws two, 
three, or more bills of the same tenor and date. These bills are sent to 
his correspondent by different ships. Thus, he secures the swiftest con- 
veyance, and his remittances will not be delayed by any accident that 
may happen to an individual ship. In drawing these bills, it is always ex- 
pressly stated whether each bill be the first, second, or third of a set ; as, 
" Pay this my first of exchange (the second and third not being paid)." 
On the payment of any one bill, the others are of no value. If a mer- 
chant, say at Paris, has a set of bills drawn on a merchant at London, he 
will sometimes send over the first bill to his correspondent in London, to 
get it accepted, and to retain it until claimed by the holder of the second. 
The merchant at Paris will then write on the second bill, that the first lies 
accepted at such a house in London. He will then sell it, or pay it away. 
By this means, he is sure that the bill he negotiates will not be returned 
to him, and greater value is given to his bill, not only as it has the addi- 
tional security of the accepter's name, but, if it be drawn after sight, it 
will become due so much the sooner. When the second bill arrives in 
London, the holder takes it to the house where the first is deposited, and 
it is immediately given up to him. 

Foreign bills are often drawn at a " usance " after date. A usance 
from Amsterdam, Rotterdam, Hamburgh, or any place in Germany, is 
one month ; from France, thirty days ; from Spain and Portugal two 
months ; from Sweden, seventy-five days ; from Italy, three months. 
Where it is necessary to divide a month upon a half usance, which is the 
case when the usance is either one month or three, the half month is al- 
ways fifteen days. Bills drawn from Russia are dated according to the 
old style, and twelve days must be added to the date in order to ascertain 
at what time they fall due. 

A bill is sometimes accepted for the honor of the drawer, or of one of 
the indorsers. Thus, if a bill from Hamburgh be drawn upon a person 
in London, who refuses to accept it, another party, knowing the drawer 
or one of the indorsers to be a respectable man, may accept the bill him- 
self, for the honor of the party with whom he is acquainted. By this 
means, he prevents the bill being returned, with expenses. This kind of 
acceptance renders him liable to pay the bill on the day after it is due, 
but he can afterwards recover the amount from the party for whose honor 
he has accepted it, and, of course, from all preceding parties. But, to 
secure himself, he must not accept the bill until after it has been protested 
for non-acceptance, and he must write, " Accepted for the honor of A. 
B. & Co." upon the face of the bill. And when the bill is due, he must 
not pay it until it has been presented for payment to the drawee. 

31 



A Treatise on Banking. 

Bills accepted, and made payable at a banking-house, in tne usual 
manner, without the addition of the word only, may be presented either at 
the banking-house, or at the residence of the accepter. In either case, it is 
a legal presentment ( 1 & 2 Geo. IV. ch. 78), as far as regards the accepter. 
In practice, however, bills are always presented at the place where they 
are made payable. If a bill be addressed to a banking-house or any other 
place only, the payment cannot be enforced until it has been presented 
at that place. If any particular place of payment be mentioned in the 
body of a promissory note, it must be presented there. 

When bankers receive any unaccepted bills, they send them out for 
acceptance, if they have four days to run. They are left at the house of 
the drawee, and are called for on the following day. On the day the bills 
are due, the tellers present them in the morning at the place where they 
are made payable. If not paid when presented, they leave a printed no 
tice or direction, of which the following is a copy : — 

Bill for £ 
Drawn by Mr. 
On Mr. 
Lies due at Messrs. Steady Sf Co. 

No. Lombard Street. 



Please call between Two and Four o'clock. 

If not paid by five o'clock, the bill is sent to the notary's. It is brought to 
the* banking-house the following morning, with the notary's ticket attached 
to it, stating the reason why it is not paid. The bill is then returned. If 
it be a foreign bill, that is, drawn from any foreign land, it must be pro- 
tested. Foreign bills are also protested for non-acceptance ; but inland 
bills are not, nor even noted, but the party who remitted the bill to the 
banking-house is advised of the circumstance. 

Bills under the value of 40s. are not subject to the stamp duty ; nor are 
drafts upon bankers payable to bearer on demand, provided the drafts are 
drawn within fifteen miles of the banking-house, and they specify such 
place, and bear date on or before the day on which they are issued. A 
person drawing a cheque beyond this distance, is subject to a penalty of 
£ 100 ; the person knowingly receiving it, to a penalty of £ 20 ; and the 
banker paying it is liable to a penalty of £ 100. The post-dating of 
cheques to make them serve the purpose of bills of exchange is subject to 
the same penalties. (55 Geo. III. ch. 184, 812, 813.) 

The following is the form of a Draft or Cheque : — 

No. 457. London, May 1, 1827. 

Messrs. Hope, Rich, $> Co., Lombard Street. 
Pay John Doe, Esq., or bearer, the sum of One Hundred Pounds. 
£ 100 Peter Thrifty fr Co. 

The words " or bearer" are essentially necessary, or the draft must be 
drawn on a stamp, and indorsed by the party who receives it. 

Bills for 20s. and under £ 5 must specify the name and residence of 
the payee ; they must be payable within twenty-one days after date, and 
be attested by one subscribing witness. Every indorsement must be at- 

32 



Bills of Exchange. 

tested by a witness ; and must specify the name and residence of the 
indorsee. All bills drawn for a less sum than 20s. are illegal. 

A bill given for an illegal consideration cannot be enforced by the 
drawer, but it may be enforced by an innocent holder who had no knowl- 
edge of the illegal consideration, and who received the bill before it was 
due. The principal illegal considerations are those arising from usury, 
gambling, and smuggling. Bills drawn at not more than twelve months 
after date, are exempt from the operation of the laws against usury. 

The following is the Table of Stamp Duties upon Bills of Exchange : — 











Not exceeding 


Exceeding 2 










2 months after 


months after 










date, 


ar 60 da/3 


date, or 60 daya 










s 


ght. 


sight. 


£ 


S. 


£ 


S. 


£ 


s. d. 


£ s. d. 


ang to 2 


and not exceeding 5 


5 





1 


1 6 


5 


5 


" 20 








1 6 


2 


20 





" 30 








2 


2 6 


30 





50 








2 6 


3 6 


50 





" 100 








3 6 


4 6 


100 





" 200 








4 6 


5 


200 





" 300 








5 


6 


300 





'" 500 








6 


8 6 


500 





" 1000 








8 6 


12 6 


1000 





" 2000 








12 6 


15 


2000 





" 3000 








15 


1 5 


3000 





" ^_— 




1 


5 


1 10 


n Bills drawn 


in sets : — 




















s. d. 




Jot exceeding 


£100 




1 6 each bill. 


Exceeding 


j £ 100 not exceeding 


200 




3 


u 


ii 


200 


u 


500 




4 


u 


(i 


500 


" 


1000 




5 


u 


ct 


1000 


" 2000 




7 6 


R 


11 


2000 


" 3000 




10 


(( 


(I 


3000 


a 






15 


(( 



Foreign bills (those drawn from foreign parts) are not required to bear 
an English stamp, nor indeed any stamp at all. But bills dated from any 
place abroad, but actually drawn in England, on unstamped paper, are 
invalid. No action can be sustained to enforce payment, nor can they be 
proved in the Court of Bankruptcy against the estate of even the accepter. 
A banker should therefore use caution in taking bills where the drawers 
and the accepters are the same firm, — one branch of the house residing 
in England, and the other branch residing abroad. Such bills may be 
fabricated in London for the purpose of raising the wind. 

If a woman accepts a bill, and is married before it becomes due, her 
husband may be sued for the amount, but she cannot. If a bill be in- 
dorsed to a woman, who afterwards marries, her husband must indorse 
the bill, unless she indorses it as the agent and by the authority of her 
husband. Should she have occasion to sue any of the antecedent parties 
to a bill, the action must be brought in the name of the husband, or else 
in the joint names of the husband and the wife. If a woman who is actu- 
ally married accept a bill by and with the authority of her husband, the 
acceptance is binding on the husband ; but if she accept a bill without 

33 



A Treatise on Banking. 

his authority, he cannot be legally compelled to pay it, unless it were 
given for articles necessary to her support. 

A person under twenty-one years of age, whether accepter, drawer, or 
mdorser of a bill of exchange, cannot be sued at law, except the bill be 
drawn upon him for necessaries ; but if he draw a bill and transfer it to a 
third person, the third party may sue the accepter. The term " neces- 
saries " is generally considered to include, not only those things which are 
essential to existence, but those also which are suitable to the rank of the 
party. Many articles are considered necessary to the son of a nobleman, 
which would not be necessary to a man of an inferior station in society. 

If the drawee refuse to accept a bill, the holder may immediately bring 
an action for the amount against all the other parties, without waiting un- 
til the bill becomes due. And should the word "at" be written before 
the name of the drawee, it makes no difference, especially if it be written 
in such a manner as if designed to escape observation. But it is the prac- 
tice of the London bankers to hold bills refused acceptance, and merely 
give notice of the circumstance to the party who sent it to the bank. If, 
however, it be an inland bill, drawn after sight, the bill is noted for non- 
acceptance. If it be a foreign bill, it is protested, and the protest sent to 
the last indorser. If the bill be not paid when due, it is then protested for 
non-payment, and, with the second protest, returned to the last indorser. 
When a bill is drawn after sight, the day on which it is noted or protest- 
ed for non-acceptance, is regarded as the day on which the drawee has 
seen it, and the time on which it will become due is calculated accord- 
ingly. 

If the accepter, drawer, and all the indorsers to a bill become bank- 
rupts, the holder may prove for the full amount under each commission, 
and receive a dividend under each, provided he do not receive altogether 
more than 20s. in the pound. But if he receive a dividend under one 
commission before proving under the others, he can only prove for the 
balance. 

• If a bill be lost, immediate notice should be given to the accepter, and 
to the bankers or other parties at whose house it may be made payable. 
If, after such notice, they pay the bill to any person who had not given value 
for it, they are accountable to the loser. But a person who had given 
value for a lost or stolen bill to a thief or to a finder, can recover the 
amount from all the parties in the same way as though he had received it, 
in the course of business, from the last indorser, provided the bill was not 
specially indorsed. But if it was specially indorsed, and the thief or find- 
er should have forged the indorsement, the holder cannot recover the 
amount, even though he may have given value for the bill, but he must 
sustain the loss. 

If a lost bill should have been specially indorsed, or if the loser can 
prove that the bill has been destroyed, he can bring an action against the 
accepter for the amount. But if he cannot prove that the bill is actually 
destroyed, and it was indorsed in blank, he cannot recover from the ac- 
cepter. For it is possible that a finder may pass it for a valuable con- 
sideration to another party, who would thus be a bonajide holder, and 
might compel the accepter to pay him the amount. In this case, there- 

34 



Bills of Exchange. 

fore, the loser has no redress in law, but he may apply to a court of 
equity, and might obtain an order upon the accepter to pay the amount of 
the lost bill upon receiving a satisfactory indemnity. The loser of a bill 
should cause payment to be demanded from the accepter the day it falls 
due, and give notice of dishonor to the drawer and indorsers, in the same 
way as though he had the bill in his possession. 

A country banker gave change for a Bank of England note for .£100 
which had been stolen. It was done at the time of the races, and im- 
mediately on opening the bank. The party who brought it stated he 
had some bets to pay at the race-course, and gave a fictitious address, 
which was written on the note. The loser of the note brought an action 
against the banker, and recovered the amount. The judge who tried the 
cause, stated that, in his opinion, there had been laches, i. e. neglect on 
the part of the bankers in not making further inquiry, and under his di 
rection the jury returned a verdict for the plaintiff. 

Any material alteration of a bill of exchange vitiates the bill, and it 
cannot be legally enforced against any of the parties, unless the alteration 
be made before the bill be accepted, and also before it has passed out of 
the hands of the drawer. 

Thus, if a bill be left for acceptance by the drawer, and the drawee 
alter the date, time, or amount of the bill, and then accept it, the altera- 
tion does not affect the validity of the bill ; but if the bill be left for accept- 
ance by a third party, and the drawee then alters and accepts the bill, the 
bill is vitiated. Any alteration in the date, sum, time, name of drawer or 
payee, or appointing a new place of payment, is a material alteration, and 
requires a new stamp. But any alteration made only with a view of cor- 
recting a mistake does not vitiate a bill, provided it be made with the con- 
currence of all the parties. If a drawee accepts a bill, and before he 
gives the bill out of his possession cancels his acceptance,, he cannot be 
compelled to pay it. 

A bill must be presented in reasonable time. But what is a reasonable 
time is a question of consideration for the jury, and the decision has varied 
according to circumstances. If a bill be presented at a banker's after the 
hour of business, the presentment is not in reasonable time ; nevertheless 
such a presentment is a legal presentment, if the banker or any per- 
son on his behalf should be there to give an answer to the party pre- 
senting it. 

Cheques, and notes payable on demand, should also be presented for 
payment within a reasonable time after they are received. It has been 
held that a person who receives a cheque is not bound to present it at the 
banker's till the next morning ; and if the bank was at a distance he was 
not bound to put the cheque into the post-office until the next day. But, 
perhaps, it would not be safe to rely upon these decisions. No general 
rule can be given ; for the time which may be reasonable in one case 
may be unreasonable in another. 

If a banker receive a bill or note by post, he is not required to present 
it until the next day. 

" A man taking a bill or note payable on demand, or a cheque, is not bound, laying 
aside all other business, to present or transmit it for payment the very first opportu- 

35 



A Treatise on Banking. 

nity. It has long since been decided, in numerous cases, that, though the party by 
whom the bill or note is to be paid live in the same place, it is not necessary to present 
the instrument for payment till the morning next after the day on which it was re- 
ceived. And later cases have established, that the holder of a cheque has the whole 
of the banking hours of the next day within which to present it for payment." 
(Byles's Law of Bills of Exchange, p. 123.) 

In the following case it was decided that the presentment of a bill of 
exchange at the clearing-house is a legal presentment. 

" On the 11th of September, between one and two o'clock, the defendants gave the 
plaintiffs a cheque upon Bloxam & Co., then bankers, in payment for goods. The 
plaintiffs lodged* the cheque with Messrs. Harrison, their bankers, a few minutes after 
four ; and they presented it between five and six to Bloxam & Co., who marked it as 
good. It was proved to be the usage among London bankers not to pay any cheque 
presented by or on behalf of another banker after four o'clock, but merely to mark it if 
good, and pay it next day at the clearing-house. On the 12th, at noon, Harrisons' clerk 
took this cheque to the clearing-house, but no person attended for Bloxam & Co., who 
stopped payment at nine on that morning, and the cheque was therefore treated as 
dishonored. The plaintiffs, in going with the cheque to Harrisons', passed Bloxams' 
house. On a case stating these facts, the court held that there had been no laches in 
the plaintiffs in not presenting the cheque to Bloxam & Co. on the 11th for payment, 
or in his bankers in not presenting it at the banking-house, but merely at the clearing- 
house, and therefore gave judgment for the plaintiff.'' (Bayley On Bills of Ex- 
change.) 

Bills may be negotiated after they are due, but the party receiving an 
over-due bill cannot acquire a claim which the party holding the bill did 
not possess. For instance, one party may draw an accommodation bill 
upon another. As in this case no value had been given, the drawer 
could not sue the accepter for the amount. But if the drawer had passed 
this bill for value to a third party before it became due, that party could 
sue the accepter. But if the drawer passed it to a third party even for 
value after it became due, the third party could not sue the accepter, but 
would stand in the same situation as the drawer. 

If a party lodged bills with a banker for the purpose of being collected, 
and the amount when received to be placed to his credit, and the banker 
gets them discounted, and applies the money to his own use, the customer 
has no redress except against the banker. The party who has given value 
for the bills to the banker can enforce payment of them. 

As the giving notice of the dishonor of a bill or cheque is of consider- 
able practical importance, I shall make a few extracts upon the subject 
from Mr. Justice Bayley's Treatise on Bills of Exchange. 

" Though no prescribed form be necessary for notice of the dishonor of a bill or 
note, it ought to import that the person to whom it is given is considered liable, and 
that payment from him is expected. 

" And the notice ought to import that the bill or note has been dishonored. A 
mere demand of payment and tin-eat of law proceedings, in case of non-payment, is 
not sufficient. 

" Especially if such demand be made on the day the bill or note becomes due. 

" Notice must be given of a failure in the attempt to procure an acceptance, though 
the application for such acceptance might have been unnecessary ; otherwise the per- 
son guilty of the neglect may lose his remedy upon the bill. 

t; The notice must come from the holder, or from some party entitled to call for 
payment or reimbursement. 

" A notice from the holder or any other party will enure to the benefit of every 
*ther party who stands between the person giving the notice and the person to whom 

36 



Bills of Exchange. 

it is given. Therefore a notice from the last indorsee to the drawer will operate as a 
notice from each indorsee. 

" It is, nevertheless, prudent in each party who receives a notice, to give immediate 
notice to those parties against whom he may have right to claim ; for the holder may 
have omitted notice to some of them, and that will be no protection; or there may be 
difficulties in proving such notice. 

" A notice the day the bill or note becomes due is not too soon ; for though payment 
may still be made within the day, non-payment on presentment is a dishonor. 

" To such of the parties as reside in the place where the presentment was made, the 
notice must be given, at the farthest, by the expiration of the day following the refusal ; 
to those who reside elsewhere, by the post of that or the next post day. Each party 
has a day for giving notice, and he is entitled to the whole day ; at least, eight or nine 
o'clock at night is not too late. He will be entitled to the whole day, though the post 
by which he is to send it goes out within the day. 

" And though there be no post the succeeding day for the place to which he is to 
send ; therefore, where the notice is to be sent by the post, it will be sufficient if it be 
sent by the post of the following day ; or, if there be no post the following day, the 
day after. 

" Where a party receives notice on a Sunday, he is in the same situation as if it did 
not reach him till the Monday ; he is not bound to pay it any attention till the Mon- 
day, and has the whole of Monday for the purpose. So, if the day on which notice 
ought thus to be given be a day of public rest, as Christmas-day or Good Friday, or 
any day appointed by proclamation for a solemn fast or thanksgiving, the notice need 
not be given until the following day. 

" And it has been held that where a man is of a religion which gives to any other 
day of the week the sanctity of Sunday, as in the case of the Jews, he is entitled to 
the same indulgence as on that day. 

" Where Christmas-day, or such day of fast or thanksgiving, shall be on a Monday, 
notice of the dishonor of bills or notes due or payable the Saturday preceding need not 
be given until the Tuesday following. 

" And Good Friday, Christmas-day, and any day of fast or thanksgiving, shall, from 
10th April, 1827, as far as regards bills or notes, be treated and considered as Sunday. 

" But these provisions do not apply to Scotland. 

" If the holder of a bill or note place it in the hands of his banker, the banker is only 
bound to give notice of its dishonor to his customer, in like manner as if the banker 
were himself the holder, and his customer were the party next entitled to notice. 

" And the customer has the like time to communicate such notice, as if he had re- 
ceived it from a holder. 

" And therefore by thus placing a bill or note in a banker's hands, the number of 
persons from whom notice must pass is increased by one. 

" Thus notice sent by a London banker to a London customer the day after the dis- 
honor is in time ; and if the customer communicate that notice the day following, that 
will be in time also. 

" It is no excuse for not giving notice the next day after a party receives one, that 
he received his notice earlier than the preceding parties were bound to give it, and that 
he gave notice within what would have been proper time if each preceding party had 
taken all the time the law allowed him. The time is to be calculated according to the 
period when the party in fact received his notice. Nor is it any excuse that there are 
several intervening parties between him who gives the notice, and defendant to whom 
it is given ; and that if the notice had been communicated through these intervening 
parties, and each had taken the time the law allows, the defendant would not have 
had the notice sooner. 

" Sending a verbal notice to a merchant's counting-house in the ordinary hours of 
business, at a time when he or some of his people might reasonably be expected to be 
there, is sufficient ; it is not necessary to leave or to send a written notice, or to send 
to the house where he lives. Sending notice by the post is sufficient, though it be not 
received ; and where there is no post, it is sufficient to send by the ordinary mode of 
conveyance. 

" And it is not essential the notice should be sent by the post where there is one ; 
sending to an agent by a private conveyance, that he may give the notice, is sufficient, 
if the agent give the notice, or take due steps for the purpose, without delay 

" Notice to one of several partners is notice to all : and when a bill has been drawn 

37 



A Treatise on Banking. 

by a firm upon one of the partners, and by nim accepted and dishonored, it is un- 
necessary to give notice of such dishonor to the firm ; for this must necessarily be 
known to one of them, and the knowledge of one is the knowledge of all. 

" Upon an acceptance payable at a banker's, notice of non-payment need not be 
given to the accepter ; for he makes the bankers his agents ; presentment to them is 
presentment to him. 

" A person who has been once discharged by laches from his liability on a bill or 
note is always discharged. And, therefore, where two or more parties to a bill or 
note have been so discharged, but one of them, not knowing of the laches, pays it ; he 
pays it in his own wrong, and cannot recover the money from another of such 
parties." 

As many bills drawn in foreign languages pass through the hands of a 
London banker, it may be useful to give a list of some of those words 
which express the amount and the time, the two main points in a bill 
of exchange : — 



English, . 

German, 

Dutch, 

French, . 

Italian, 

Spanish, 

Portuguese, 

Swedish, 

Danish, 

English, 
German, > 
Dutch, . 
French. 



Italian, 
Spanish, 



Swedish, 
Danish, 



One 
Ein 
Een 

Un 

Uno 

Uno 

Hum 

En 

Een 



Two 

Zwei 
Twee 

Deux 

Due 

Dos 

Dous 

Twa 

To 



Three 

Drei 

Drie 

Trois 

Tre 

Tres 

Tres 

Tre 

Tre 



Sixty 

Sechzig 

Zestig 

Soixante 

Sessanta 

Sesenta 

Secenta 

Sexti 

Tredsindstyve 



Ninety. 
Neunzig. 
Negentig. 
Quatre-vingt-dix, or 

Nonante. 
Nonanta, or Novanta. 
Noventa. 
Noventa. 
Nitti. 
Hal vfemtesindstyve . 



Two months after date. 
Zwei monate nach dato. 
Twee maanden na dato. 
A deux mois de date. 



. A due mesi dopo data. 

( A dos meses de la fecha. 
( A dos meses data. 



Three days after sight. 

Drei tage nach sicht. 

Drie dagen na zigt. 

A trois jours de vue. 
C A tre giorni vista. 
I A 



A dous mezes de data. 
Twa manander ifran dato. 
To maaneder efter dato. 



tre giorni dopo vista. 

A tres dias vista. 

A tres dias vista. 
Tre dagar efter sigt. 
Tre dage efter sigt. 

In all the above languages, " at sight " is usually expressed by a vista, 
except the French, which expresses it by a vue. " At usance " is ex- 
pressed by a uso or ad uso. The names of the months so nearly re- 
semble the English, that a mistake can but rarely occur. 

The following are forms of bills in each of the above languages : — 

Ekench. 
Lille, le 28 Septembre, 1848. Bon pour £158 9 Sterlings. 

Au vingt-cinq Decembre prochain, H vous plaira payer par ce mandat a Vordre de nous- 
memes la somme de cent cinquante-huit livres sterlings 9 shellings valeur en nous-mimes et 
que passerez suivant Vavis de 

A Messieurs 

a Londres. 

German. 

Nilrnberg, den 28 October, 1848. Pro £ 100 Sterling. 

Zwei monate nach dato zahlen Sie gegen diesen Prima Wechsel an die Ordre des Herrn 

Ein Hundert Pfund Sterling den Werth erhalten. Sie bringen 

solche au/Rechnung laut Bericht von 



Herren 



London. 



38 



Bills of Exchange. 

Dutch. 

Grouw, den 1st November, 1848. Voor £59 17 6 

Twee maanden na dato gelieve XJEd te betalen voor dezen onzen prima Wisselbrief de se- 

cunda niet betaald zynde aan de ordre van de Heeren negen Sf 

vyftig Ponden zeventien sckelling en zespences sterling, de waarde in rehening XJEd stelle het 
op rehening met of zander advys van 

de Heer_ 

te London. 

Italian. 

Livorno, le 25 Settcmbre, 1848. ' Per £500 Sterline. 

A Tre mesi data pagate per questa prima de Cambio (una sol volta) aW or dine 

, la somma di Lire cinque cento sterline valuta cambiata, e ponete 

in conto M. S. secondo Vawiso Addio 

Al 



Londra. 

Spanish. 
Malaga, a 20 de Setb re de 1848. Son £ 300. 

A noventa diasfecha se serviran V* mandar pagar por esta primera de cambio a la orden 

de los S re " Tres cientas lubras Esterlinas en oro o plata valor red' 

bido de dhos S res que anotaran valor en cuenta segun aviso de 



A los S r 



Londres. 

Portuguese. 
£ 600 Esterlinas. Lisbon, aos 8 de Dezembro de 1848. 

A Sessenta dias de vista precizos pagar -d V por esta nossa unica 

via de Letra Segura, a nos ou a nossa Ordem a quantia acima de Seis Centas Livras Es- 
terlinas valor de nos recebido em Fazendas, que passera em Comta segundo o aviso de 



Ao Sen r 



Londres. 

Swedish. 
Bjorneberg, den 23 September, 1848. For £ Sterl. 100. 

Nittio Dagar efler dato behagade H. H. emot denna prima Wexel (secundo obetald) betala 

till Herr elle ordres Etthundra Pund Sterling som stalles i rakning 

enligt avis. 

Herrar . 

London. 

Danish. 

Kjobenhavn, 9 December, 1848. Rbae 4,000. 

Tre maaneder ejter dato behager de at betale denne Prima Vexd, secunda ihhe, til Herr 

eller ordre med Fire Tusinde Rigsbank Daler, Valutta modtaget 

og stilles i Regning ifdlge advis. 

Herrer ________ 



London. 

Bills of exchange form a large proportion of the circulating medium of 
Lancashire, and supply the place of country notes. The following ac- 
count is given by J. Gladstone, Esq., M. P. : — 

" We sell our goods, not for payments in cash, such as are usual in other places, but 
generally at credits from ten days to three months, to be then paid for in bills on Lon- 
don at two or three months' date. Those bills we pay to our bankers, and receive 
from them bills or cash, when we have occasion for either, to make our payment*. 
The bank-notes or gold we require for our ordinary purposes and charges of merchan- 
dise of every description. The account is kept floating. The interest on both sides is 
calculated at the same rate, at present five per cent. Last year the rate was reduced to 
four ; and the banker charges a commission of a quarter per cent, on the amount of 
D 39 



A Treatise on Banking. 

one side of the account. That charge is his remuneration, and Jhat of his bankers in 
London, for paying our acceptance there, both inland and foreign. The account fluc- 
tuates, depending on the confidence the banker may have in his customers; if that 
confidence is entire, the customer is occasionally in his banker's debt, but more fre- 
quently the balance is"in his favor. 

" Does that extend to the whole of Lancashire ? — I believe the system at Manches- 
ter, Preston, and the other principal towns, is similar; I am not aware of any other. 
There are some small country bankers in the neighbourhood of Manchester who issue 
promissory notes, but I do not know any thing of their practice ; none of the more re- 
spectable banks in Lancashire do issue them." (Lords, 216, Gladstone.) 

" If I sell a thousand pounds' worth of goods to a wholesale grocer, or any other per- 
son who again distributes them to his customers in the country, when he comes to pay 
me the £ 1,000 he will do so in bills, running from £ 10 to any other sum ; the £ 1,000 
may be paid in twenty or thirty bills of exchange, drawn on London, and generally at 
two and sometimes three months' date." (Lords, 227, Gladstone.) 

Mr. Lewis Loyd, of the firm of Messrs. Jones, Loyd, & Co., estimated, 
in 1826, that the circulation of Manchester consists of nine parts bills of 
exchange, and the tenth part gold and Bank of England notes. Others 
think the proportion is as high as twenty to one, or even fifty to one. 
(See Evidence of Lewis Loyd, Esq., and of Mr. Henry Burgess, before 
the Committee of the House of .Lords, pp. 294, 298.) Mr. Loyd stated 
he had seen bills of £ 10 with a hundred and twenty indorsements 
upon them ; and when the stamp duties were lower, bills were drawn of 
a less amount. He gives the following criteria of accommodation bills : 
— " Bills that are issued for speculation generally travel to London very 
rapidly, with very few indorsements upon them ; they are wanted to be 
converted into bank-notes immediately, and come quite clean, and with- 
out any marks of negotiation upon them ; and, besides that, we know the 
parties upon them pretty well.'" In Scotland an accommodation bill is 
called a wind bill. 

It may be mentioned, that after the establishment of branches of the 
Bank of England at Manchester and Liverpool, the bill circulation of 
Lancashire was considerably diminished. Most of the banks made agree- 
ments with the branch bank, stipulating that in consideration of having a 
certain amount of discount, at a reduced rate of interest, they would not 
issue for local circulation any bills they had discounted for their custom- 
ers. These agreements have been modified since the act of 1844 ; but 
still the main circulation of Lancashire consists of Bank of England 
notes. It would not now be possible to find a bill with a hundred and 
twenty indorsements. 

The late Mr. Leatham attempted to calculate the amount of bills in cir- 
culation, or, more properly speaking, in existence, during each year. 
He, through Lord Morpeth, obtained a return of the number of stamps 
issued from 1835 to 1839 inclusive, and based his calculations on the sup- 
position that each bill was circulated for half the amount which the stamps 
would cover, which was considerably under the amount. From the ex- 
perience of his own bank, compared with that of the principal discount 
offices in London, he found that the average date of bills, including for- 
eign and inland, was three months. He then took the whole stamps for 
a year and divided them by four, which gave the amount circulating at 
one time. By a similar induction, he estimated foreign bills at one sixth 
of the English, though the proportion was rather greater ; and he took the 

40 



Surplus Funds. 

same average for Jrish bills in the years where no official returns had 
been made. Mr. Leatham's statement is as follows : — 

Bill Circulation of Great Britain and Ireland, during the years undermentioned. 

1815. 1824. 1825. 1826-27. 

£ £ £ £ 

Bill Stamps for Great Britain, creating the sum, 477,493,100 232,429,800 260,379,400 207,347,400 

Estimated Irish Bills, 79,582,183 38,738,300 43,396,566 34,557,803 

Foreign Bills, 92,845,880 45,194,633 50,629,327 40,317,072 

Total, 649,921,163 316,362,783 354,405,293 282,222.305 

Average circulation, 162,480,290 79,090,695 88,601,323 70,555,576 

The following is a similar return for the years 1835 to 1839. 

1835. 1836. 1837. 1833. 1839. 

£ £ £ £ £ 

British Bills, 294,775,269 355,283,900 333,263,600 341,947,400 394,203,000 

Irish Bills, 51,109,061 59,155,607 54,179,165 54,359,464 55,615,722 

Estimated amount of Foreign Bills, 57,914,721 69,420,406 65,012,080 66,500,577 75,479,120 
Bills created by bankers compound- 
ing for Stamps, .... 1,604,000 2,078.560 2,624,600 2.696,600 3,196.000 

Total, . . 405,403,051 485,943.473 455,084,445 465,504,041 523,493.342 

Average circulation, . . . 101,350,762 121,485,868 113,771,111 116,376,010 132,123,460 

There are some knotty questions connected with bills of exchange ; 
such as, Ought bills of exchange to be regarded as currency ? Have bills 
of exchange any effect on the prices of commodities ? In what way do 
bills of exchange adjust the foreign exchanges ? We have discussed these 
questions elsewhere ; but, as they more appropriately belong to the sci- 
ence than to the practice of banking, we do not introduce them into the 
present work. 



Section VI. — THE ADMINISTRATION OF A BANK WITH 
REGARD TO THE EMPLOYMENT OF ITS SURPLUS FUNDS. 

The means of a London banker consist mainly of his capital and his 
deposits. A certain portion of this sum is kept in the till, to meet daily 
demands ; another portion is advanced in the way of discounts or loans to 
his customers. The remainder forms his surplus fund ; of which a part 
will probably be invested in government securities ; loans to bill brokers, 
payable on demand ; in short, loans on the stock exchange, or in firstrate 
bills obtained through the bill brokers, and hence styled brokers' bills. The 
government securities are the more permanent of these investments. The 
amount will seldom vary. It is not deemed creditable for a bank to spec- 
ulate in the funds, or to buy and sell stock frequently, with a view of 
making a profit by the difference of price ; hence a banker sells his gov- 
ernment securities only in a season of pressure, as a means of precaution, 
or in order to meet urgent demands. On other occasions, he will, when 
necessary, reduce his short loans or brokers' bills. These form his flue 
tuating investments. In seasons when money is abundant his deposits 
will increase, and perchance, at the same time, the demand of his cus- 

41 



A Treatise on Banking. 

tomers for loans or discounts will diminish. His surplus funds will thus 
increase. But these temporary surplus funds he will on no account in- 
vest in government securities, as his deposits will be certainly, and per 
haps suddenly, reduced, and he might have to realize his government se 
curities at a loss. He will in this case increase his loans to brokers, and 
his brokers' bills. And though he will get as much interest as he can, he 
will take a very low interest rather than keep the money unproductive in 
his till, or invest it in a more permanent form. We will now take a 
short review of the different kinds of investment we have mentioned, 
The three grand points for consideration are, convertibility, exemption 
from loss, and a good rate of interest. But first we will notice those cir- 
cumstances which regulate the amount of cash to be kept in the till. 

The amount of money which a banker will keep in his till depends 
upon circumstances. First, the amount of his deposits. It is natural to 
suppose that when his deposits are large he will keep more money to 
meet them than when his deposits are small. Secondly, the amount of 
his daily payments. These will not at all times correspond with the 
amount of the deposits, for some accounts are more operative than others. 
On commercial accounts, for instance, the payments will be much heavier 
in proportion to the average balance, than on accounts which are not 
commercial. The city bankers pay much larger sums every day, in 
proportion to the amount of their deposits, than the bankers at the West 
end. Thirdly, if a banker issues notes, he will keep a less amount of 
other money in his till. The popular opinion is, that he keeps more, as 
he has to provide payment for his notes as well as his deposits. This is 
true in seasons of pressure. But in ordinary times he keeps less, as he pays 
the cheques drawn on account of his deposits with his notes, and these 
notes often get into the hands of another banker, with whom he settles by a 
draft on London. His reserve to meet his notes is kept, not in his own 
till, but in London, where it probably yields him interest. Indeed, when 
his deposits are withdrawn in large amounts, they are more usually with- 
drawn by a draft on London than in any other way. Fourthly, the num* 
ber of the branches. If a bank has many branches, the total amount of 
cash kept in the tills of the head office and all the branches put together, 
will be considerably more than would be required if the whole of the busi- 
ness were collected into one place. In the case of a run, the difference is 
considerable, as every point open to attack must be well fortified. The 
stoppage of one branch, even for a short time, would bring discredit upon 
the whole establishment. Fifthly, in London the amount of notes to be 
kept in the till will be effected by the privilege of clearing. Those bank- 
ers that " clear," can pay bills and cheques upon them by the bills and 
cheques they have upon other bankers. Those banks that do not clear, 
must pay all the bills and cheques upon them in bank-notes, before they 
receive payment of the bills and cheques they have upon other bankers. 
Hence they must lock up every night with a larger amount of cash in their 
vaults. 

We need hardly say, that with every banker the amount in the till will 
fluctuate from day to day. Though a banker has a certain average 
amount in his own mind, below or above which he does not swerve ver^ 

42 



Surplus Funds. 

widely, yet the cash-book will seldom be exactly this amount. Sometimes 
he will strengthen his till, in the prospect of large payments that may 
come upon him suddenly. At other times he will run his till low for a 
day or two, in expectation of large sums that will shortly be due to him. 
During the day, too, either the receipts or the payments may be heavier 
than he expected, and hence, now and then, the cashier reports to the 
chief clerk, or to the banker, the state of the till, in order that, if neces- 
sary, it may be replenished. The temperament of a banker, too, has 
some effect in this case. Some bankers are so cautious that they will 
" lock up " with a large amount of cash ; others are so anxious to make 
profit, that they will keep their cash very low. The state of the money 
market will also influence the tills of the bankers. When money is abun- 
dant, a banker will lock up with more money than he wants, because he 
cannot employ his funds. When money is so scarce as to betoken a 
pressure, he will also lock up strong, so as to be prepared for any emer- 
gency. In fact, there can be no general rule for regulating the amount 
of the till. Every banker must be guided by the experience of his own 
bank. The directors of the bank of England consider that their reserve 
in bank-notes and gold should be equal to about one third of their depos- 
its. From the accounts published by some of the London joint-stock 
banks, it would appear that the " cash in hand " is equal to about one 
fifth or one sixth of their liabilities. Even this, we conjecture, is a higher 
proportion than that which is generally kept by London bankers, espe- 
cially by those who settle their accounts with each other at the clearing 
house. 

To resume : After a banker has furnished his till, and supplied his cus- 
tomers with such loans and discounts as they may require, he has a sur- 
plus of cash. This surplus may be considered as being divided into 
two parts, — though it is never actually so divided, — the permanent sur- 
plus, which the banker is not likely to require, except in seasons of ex- 
treme pressure, and the temporary surplus arising from fluctuations in the 
deposits. We shall now notice those modes of investment to which we 
have referred. 

With regard to government securities, we have high authority from the 
testimony of practical bankers. The following are quotations given be- 
fore the Joint-stock Bank Committee, in the year 1836, by the late Vin- 
cent Stuckey, Esq., the founder of Stuckey's Banking Company, in Som- 
ersetshire, and James Marshall, Esq., the retired secretary of the Provin- 
cial Bank of Ireland. 

Mr. V. Stuckey : — 

" What is your reason for keeping so large a sum in Government stock ? — I have 
always found from my experience, except two days in my life, that I could get money 
more easily upon those securities than any other. 

" Is it easier, in times of emergency, to obtain money on government stock than on 
good mercantile bills ? — I have always found it so. 

" You do not concur with any witnesses who state that they have found good ne- 
gotiable bills mere easy to obtain money upon than government stock ? — No ; I 
have never found that with a good bill ; even of the house of Baring, I could get 
money more easily than on government stock. 

" Do you consider that, generally speaking, in London the rate of interest at which 
you borrow money on exchequer bills and stock is notoriously lower than that at 

43 



A Treatise on Banking. 

which you borrow on bills of exchange 1 — Yes, it is lower, and for that reason we 
generally adopt it." 

Mr. James Marshall : — 

" Will you inform the Committee whether it is the usage of the Provincial Bank to 
invest any portion of its funds in the public securities ? — It has been its uniform prac- 
tice so to do. 

" By public securities, what do you understand 1 — The Consols, for instance ; there 
are various kinds of government stock ; exchequer bills and Bank of England stock 
are generally considered as a public sort of security. 

" Do you hold stock in London only, or in Dublin as well as in London ? — In Dub- 
lin, but to a limited amount, because it is not easily convertible there. 

" On what ground is it that it is not easily convertible in Dublin 1 — From the lim- 
ited nature of the market as compared with London; we could not sell even an imma- 
terial sum without lowering considerably the price. 

" Have there not been at various times, from various causes, runs on the Provincial 
Bank, which rendered it necessary to supply large amounts of specie to that country ? 
— There have repeatedly. 

" Do you consider, from your experience, that it would have been competent to the 
bank to have maintained its full security, with satisfaction to the directors, if they had 
not been possessed of very considerable funded property in this country 1 — Certainly 
not ; speaking of the last run that happened especially, I must say that that differed 
from any former run in this respect. 

" You were conversant with the management of the Scotch banks prior to your con- 
nection with the Provincial Bank ? — Yes. 

" Is it not the usage of all the Scotch banks in like manner to maintain a very consid- 
erable portion of their funds as invested in the government securities ? — I believe the 
practice with all is generally so, but I can speak particularly to that of the three oldest 
banks, — as they are commonly called, the three chartered banks. The Bank of Scot- 
land was erected by act of Parliament, the Royal Bank of Scotland and the British 
Linen Company are erected by charter, but have been recognized in the same way, so 
that there are three public banks in distinction to any of the subsequently-formed 
banks. I can state, from personal knowledge, that these banks have had always a 
very large sum indeed invested in the funded property of the kingdom. 

"Do you consider it would be a safe system of banking, if the capital of the bank 
was altogether invested in commercial bills 1 — Certainly not." 

Of the various kinds of government stock, consols are the best, as there 
is a,more ready market for this kind of stock, and money can.usually be 
borrowed on them until the next account day ; so that, if a banker has only 
a temporary demand for money, he may thus obtain it at a moderate in- 
terest, when, by selling his stock at that time, he might sustain loss. The 
Bank of England has recourse, sometimes, to this mode of strengthening 
her reserve. Sometimes, too, a banker may make a profit by lending his 
consols. At the monthly settlings, among the brokers, stock is some- 
times in demand, and money may be obtained upon consols, until the 
next settling, without paying any interest ; and the banker may employ 
the money in the mean time. As, however, the rate of interest is usually 
low in such seasons, his profit will rarely be great. 

It is not advisable, however, that all the stock a banker holds should 
consist of consols. For a month before the payment of the dividends in 
January and July, this stock is shut, and during those times he can 
neither sell his stock nor borrow money upon it. This may be inconve- 
nient, and he can only avoid this inconvenience by selling or lending his 
consols, just before the shutting, on the best terms he can. To avoid 
either of these alternatives, it is better he should divide his stock, and hold 
half the amount in consols, and half in reduced 3, or in the 3^ per cents. 

44 



Surplus Funds. 

The dividends on these latter stocks are payable in April and October, so 
that by this means the banker will always hold an open stock : when con- 
sols are shut, the reduced 3 and the 3£ per cents, are open, and vice 
versa. There are no time bargains in the reduced 3 per cents., or in the 
3J per cents ; but in ordinary times money can be borrowed upon them 
at the market rate of interest. In seasons of pressure these are not sc 
salable as consols. Bank stock, India stock, and long annuities, not be- 
ing readily convertible, are not generally good investments for bankers. 

Some bankers avoid all government stock, and give a preference to 
exchequer bills. They have some advantages. As the government must 
pay the amount demanded in March or June, when they become due, there 
can be no loss beyond the amount of the premium at which they were 
purchased. A banker, too, can borrow money upon them quietly and 
secretly. A transfer of stock is always known, and, if for a large 
amount, will, when money is scarce, excite notice, and give the impres- 
sion that the banker is compelled to realize some of his securities, to meet 
demands made upon him by his depositors. But a banker can hand his 
exchequer bills to a stock-broker, who will bring him the money, and the 
party who has granted the loan will know nothing about the party for 
whom it was required. On the other hand, there are some disadvantages. 
Almost every change in the market value of money affects the price of 
exchequer bills, and whenever money becomes abundant, the government 
are very apt to reduce the rate of interest much below that which can 
be obtained from consols. But a greater objection is, that, even in or- 
dinary times, they are hardly salable in large amounts. There are not 
now so many exchequer-bill jobbers as formerly, and hence these bills 
are not so readily salable. On this account, the Bank of England, who 
were formerly large holders of exchequer bills, have changed their system, 
and are now holders of stock. The city bankers, too, prefer placing 
their money with the bill-brokers, to investing it in exchequer bills. But 
they are still a favorite mode of investment with bankers at the West end. 

East India bonds yield a higher interest than exchequer bills, and the 
interest cannot be reduced till after twelve months' notice from the East 
India Company. But they are by no means so salable. Money, how- 
ever, may generally be borrowed upon them ; and the loans of the Bank 
of England are always announced to be granted on " exchequer bills, 
India bonds, and other approved securities." 

Bonds of corporations, or of public companies, are by no means proper 
investments for a banker, except to a very moderate amount, and when 
they have a short time to run. They may, however, be taken as security 
for temporary advances to respectable customers. 

Good commercial bills, of short dates, have this advantage over govern- 
ment stock or exchequer bills, that a banker is sure to receive back the 
same amount of money which he advanced. He can calculate, too, upon 
the time the money will be received, and make his arrangements accord- 
ingly. And if, unexpectedly, he should want the money sooner, the bills 
can, in ordinary times, be re-discounted in the money market. Another 
advantage is, that he is able to avail himself of any advance in the current 
rate of interest. He will get no higher dividend from his investment in 

45 



A Treatise on Banking. 

government stock, should money afterwards become ever so valuable. 
But with regard to bills, as they fall due he will receive a higher rate of 
discount with the new bills he may take, and thus, as the market rate of 
interest advances, his profits will increase. 

The bankers of Lancashire usually keep the whole of their reserves in 
bills of exchange. If they have a " good bill case," that is, a large 
amount of good bills in their case, they think themselves prepared to meet 
any emergency. Their objection to government securities is founded, 
first, upon the low rate of interest which they yield ; and, secondly, the 
possibility of loss, from fluctuations in price. They contend, too, that 
good bills of exchange are more convertible than even exchequer bills ; 
and, even if not convertible, the money comes back as the bills fall due, 
and thus the reserve is constantly replenished. The following evidence 
was given before the Committee on Banks of Issue, in the year 1841, by 
Mr. Paul Moon James, the Manager of the Manchester and Salford 
Bank : — 

" Do you mean to say that no portion of the capital of your bank is invested in any 
other security than bills of exchange 1 ? — At the present time it is not. In the office, 
at all times, we have a larger amount than the liabilities of the bank in good bills of 
exchange. They are coming due every day, and are therefore considered a very eligi- 
ble investment. It is advantageous 'to a bank when it is in a position to get that 
kind of bills. 

" Do you consider that bills of exchange may safely be relied upon, as affording the 
means by which to obtain money whenever you want it ? — After a very long expe- 
rience, I consider that they may be safely relied upon ; they have never failed. 

" Did you never know them to fail 1 — I have known exchequer bills to fail, but I 
have never known bills of exchange to fail. I am alluding to the panic of 1825. I 
could not sell exchequer bills for several hours at that time. 

" You could discount bills ? — At that time money was obtained upon bills on the 
same day on which I could not get money for exchequer bills ; and having paid a high 
premium for exchequer bills, and met with great loss, I have rather an objection to 
hold them. 

" Do you mean to say, that you recollect a day upon which you could obtain money 
upon bills of exchange, and could not obtain money upon exchquer bills 1 — I do." 

Some of the Scotch bankers, too, seem to be favorable to investments 
in commercial bills. Mr. Anderson, the general manager of the Union 
Bank of Scotland, gave the following evidence before the Committee on 
Banks of Issue, in 1841 : — 

" Do you consider, in fact, that the holding of a reserve in government securities, 
gold, and Bank of England notes, independently of the ordinary daily operations of 
your business, is, or is not essential to the perfect safety of a bank 1 ? — I do not think 
that it is quite essential that they should be government securities. Available securi- 
ties I should think quite essential ; but then comes the question, What is available ? 

" Are you of opinion that bills of exchange are a proper description of reserve, to be 
held independently of the other species of reserves that have been mentioned ? — I 
should think so. 

" You think that bills of exchange may safely be relied upon at all times 1 — We 
have Mr. Gurney's authority for saying so. 

" Is there no essential difference between keeping exchequer bills and stock, and 
keeping bills of exchange as reserves ? — If the bills of exchange are perfectly well se- 
cured, I should think not, so far as the safety of the bank is concerned." 

The authority of Mr. Samuel Gurney, from his high standing in the 
city, is so constantly referred to upon this subject, that we copy his evi- 

46 



Surplus Funds. 

dence. It was given before the Committee on Joint-stock Banks, in 
the year 1836 ; previous, of course, to the passing of the act of 
1844. 

" Would not the result from that opinion he, that a properly conducted establish- 
ment, whether a private or a joint-stock bank, should have some government securities 
or exchequer bills on which always to rely as a resource in a moment of such emer- 
gency ? — Experience has shown that it is not needful ; bills of exchange are quite as 
good a security to hold in time of difficulty as exchequer bills or stock ; in most re- 
spects very much better. 

" Cannot you conceive a state of things in the money market — a state of mercantile 
discredit, for instance — when it might be possible to procure money on government 
securities, when it could not be procured on private security in the shape of bills ? — 
Such difficulty may possibly exist under very peculiar circumstances 5 but I repeat my 
opinion, that bills of exchange have proved themselves to be a better investment for 
bankers than stock or exchequer bills. 

" It is quite intelligible why, in ordinary times, bills of exchange should be a prefer- 
able investment for money, inasmuch as there is no risk of loss by variation of pre- 
mium in the purchase and resale; but would you wish the committee to suppose that 
in the case supposed by the question, of a great degree of mercantile discredit and 
doubt, an amount of exchequer bills would not be a more certain security on which to 
raise money than the bills of private merchants'? — That is a difficult question to an- 
swer ; I doubt it. 

" Supposing a period of difficulty to arise, and two country bankers came up to 
London, one who could exhibit government stock to the extent of £ 25.000, and 
.£25,000 in bills of exchange, and the other banker exhibiting £50.000 in bills of ex- 
change only, which do you think would have the best means of procuring accommoda- 
tion in the London market to pay his engagement ? — My apprehension is, that they 
would both get their supplies upon any particular emergency ; it is my judgment, that 
to a banker a good supply of bills of exchange of first-rate character is a better invest- 
ment for his funds, for which he is liable to be called upon on demand, than exchequer 
bills or any government security." 

A London banker never considers as a part of his reserve the bills he 
has discounted for his customers. Nothing could damage his credit more 
than any attempt to rediscount these bills. During the war, the London 
bankers had discount accounts with the Bank of England ; and during 
the panic of 1825, it is well known they discounted largely with that es- 
tablishment. But since that period they have not done so, and their in- 
dorsements are never seen in the money market. The practice is now 
more general of lodging money at call with the large money dealers. 
And it is in this way that the London bankers make provision for any 
sudden demand. It is rarely, however, that any large demand comes so 
suddenly as to occasion any inconvenience. And it may be observed, 
that such bankers as are members of the Clearing-house have the whole 
day to make preparation, — one of the circumstances which enables them 
to lock up at night with a smaller amount of cash. 

In the morning the banker looks at his " Cash-book," and observes the 
amount with which he " locked up " the preceding night. He then looks 
at the " Diary," which contains his receipts and payments for that day, as 
far as he is then advised. He then opens the letters, and notices the re- 
mittances they contain, and the payments he is instructed to make. He 
will learn from these items whether he " wants money," or has " money 
to spare." If he wants money, he will " take in " any loans that may be 
falling due that day, or he may " call in " any loans he may have out on 
demand, or he may go further, and borrow money for a few days on 

47 



A Treatise on Banking. 

stock or exchequer bills. Should he have money to spare, he will, per 
adventure, discount brokers' bills, or lodge money on demand with thf; 
bill-brokers, or lend it for fixed periods upon stock or exchequer bills. 
There are some bill-brokers who usually make their rounds every morn- 
ing, first calling on the parties who supply them with bills, and then call- 
ing on the bankers who supply them with money. The stockbrokers, 
too, will call after " the market is open," to inform the banker how 
" things are going " on the Stock Exchange, what operations are taking 
place, and whether money is abundant or scarce " in the house " ; also 
what rumors are afloat that are likely to affect the price of the funds. 
It is thus that a banker regulates his investments, and finds employment 
for his surplus funds. 

In our opinion, it is best for a banker not to adopt exclusively any one 
of the investments we have noticed, but to distribute his funds among 
them all. We have seen that practical bankers of high standing have 
been in favor of government securities, as being at all times convertible. 
The objection on the part of others has been, that the value of these secu- 
rities very much fluctuates, and as their realization will be required only in 
seasons of pressure when the funds are low, it is sure to be attended with 
loss. On the other hand, it may be stated, with regard to " loans on de- 
mand," that the recent failures of bill-brokers have shown that the u de- 
mand " may not always be readily met. And with regard to " brokers' 
bills," the numerous failures among houses of the first standing have proved 
that great losses and most inconvenient " locks-up " may occasionally 
take place from such securities. Without condemning other modes of in- 
vestment, we are strongly inclined to favor government securities, though 
fully conscious of the losses they may occasionally produce. There is 
one consideration that must be taken into account : a bank that has 
large surplus funds, if it makes no investments in government securities, 
will be strongly tempted to invest their funds elsewhere in other securi- 
ties that may not be so convertible. It is true that more interest may for 
a time be obtained, but ultimately the bank may, though in a state of per- 
fect solvency, be compelled to stop payment from being unable to realize 
its investments. 

Another advantage of a large investment in government securities 
is, that the bank, by the publication of its balance-sheet, has always the 
means of showing to its depositors that a large portion of its deposits is at 
all times amply secured. The Bank of England states the amount of 
their " government securities " distinct from the " other securities." It 
may so be that the " other securities" are as good as the government se- 
curities, and perhaps more profitable, but the public do not know that to 
be the case ; and were all the investments in " other securities," they 
might not feel the same degree of confidence as to the prompt repayment 
of their deposits. The same principle applies to other banks. And it 
may reasonably be supposed that between two banks in similar circum- 
stances as to other respects, depositors would rather lodge their money in 
a bank which had a large amount of government securities, than in one 
which had none. 

As we have referred in this section to some of the operations of the 



The Stock Exchange. 



Stock Exchange, this may be a proper place to discuss the nature of 
these transactions, so far at least as concerns bankers. 

The reader is of course aware that the " Stocks," or the " Funds," or 
by whatever other name they may be called, are debts due from the na- 
tion to those persons whose names are entered on the bank books. The 
man who holds £ 100 consols is a creditor to the nation for £ 100, for 
which he receives £ 3 per annum ; and the price of consols is the amount 
of the money for which he is willing to transfer this debt from himself to 
another person. Now, if this man knows another who is willing to give 
him, say £ 90 for this £ 100 consols, they can go to the bank, and the 
seller, being properly identified, will transfer this £ 100 consols into the 
name of the person to whom he has sold it. His account is then closed 
in the bank books, and a new account is open in the name of the buyer ; 
for every holder of stock has an account in the bank ledger, in the same 
way as bankers and merchants open ledger accounts for their customers. 
The seller of the stock will also give a receipt to the buyer for the money 
in the following form : — 



Consolidated £ 3 per Cent. Annuities 



Dividends due 

Jan. 5th, 

July 5th, 

and are usually 

paid a few days 

after. 

Transfer Days 

Tuesday, 

Wednesday, 

Thursday, 

Friday. 

Holidays 
excepted. 



Received this day of 

184 of 

the sum of 

being the Consideration for 



Interest or Share in the Joint Stock of Three per 
Cent. Annuities, erected by an Act of Parliament 
of the 25th Year of the Reign of King GEORGE 
II., entitled, An Act for converting the several An- 
nuities therein mentioned, into several Joint Stocks 
of Annuities, transferable at the BANK of ENG- 
LAND, to be charged on the Sinking Fund; and 
by several subsequent Acts, together -with the Pro- 
portional Annuity at £ 3 per Cent, per Annum, at- 
tending the same, by this day i 
transferred to the said 



Witness 



Hand 



Witness 



EQ- The Propria- 
tors, to protect them- 
selves from FRAUD, 
are recommended to 
ACCEPT by them- 
selves or their Attor- 
nies, all TRANSFERS 
made to them. 



£ s. d. 



But parties do not usually treat with each other in this way. A brokei 
is employed either to buy or to sell, as the case may be. The stock- 
brokers are an association consisting of about six hundred persons, who 
meet together in a building in Capel Court, Bartholomew Lane, close to 
the Bank. Each broker before admission must find three securities for 

49 



A Treatise on Banking. 

£ 300 each, which sum is applied to meet any claims the other members 
of the " House " may have upon him during the first two years. The 
suretyship then ceases. The subscription paid by each member is ten 
guineas per annum. The House is governed by a committee of thirty 
persons chosen from the members. 

But although all the "members of the House" are called stock- 
brokers by the public, yet within the House they are divided into two 
classes, brokers and jobbers. A broker, as the name implies, is an agent 
who buys or sells for his customers out of the House, and he charges 
them a commission upon the amount of the stock. A stock-jobber is a 
stock merchant ; but he does not deal with the public ; he deals only with 
the brokers ; and he is at all times ready either to buy or to sell. The 
price at which he sells is J more than the price at which he buys. If 
one broker has an order from his customer to buy £ 100 consols, and 
another broker has an order to sell .£100 consols, these two brokers do 
not deal together, but both go to a jobber. One will sell his consols to 
the jobber, say at 90, and the other will buy his consols from the jobber at 
90J. Hence the difference between the buying and the selling price of 
consols is always J, and thus in the newspapers the price is quoted in this 
way, 90 to 90J. 

A banker is, of course, one of the public, and when he wants to buy or 
to sell stock, he gives instructions to his broker, and the process is as we 
have now described. 

Were there no jobbers, a broker would not easily find at all times another 
broker who had occasion to sell the same amount of stock which he wished 
to buy, and he would have a difficulty in buying or selling small amounts. 
But there is no difficulty with the jobbers. The jobbers will not only buy 
and sell stock on the same day, but they will buy stock on one day, and 
agree to sell it at a future day, or vice versa. These future days are 
called the settling days, being the days on which the members of the 
House settle their accounts. They are fixed by the Committee of the 
Stock Exchange, and they now occur about once a month. Now, if a 
banker wants a sum of money for a short time, either to pay off a deposit 
or to make an advance to a customer, he will direct his stock-broker to 
sell, say £ 50,000 consols " for money," and buy them " for time," that 
is, against the next "settling day," or, as it is sometimes called, the 
next " account day." On the other hand, if a banker has money he 
wishes to employ for a short time, he will reverse the operation, and de- 
sire his broker to buy consols for money and sell them for time. He 
thus gets interest for his money, according to the difference of price be- 
tween consols for time and consols for money. Generally, the price for 
time is higher than the price for money ; and the difference between 
these two prices is called the " Continuation." Supposing that the next 
settling day is a month distant, and the continuation is one eighth per 
cent., that amounts to twelve eighths, or three per cent, per annum. The 
continuation will vary according to the near approach of the settling day, 
according to the abundance of money and the market rate of interest, and 
according to the abundance or scarcity of stock. The last cause is not so 
readily understood by the public, and we will therefore explain it. The 

50 



Public Debt. 



stock-jobbers, as we have said, are stock merchants. Of course they are 
large holders of stock ; it is their capital, on which they trade. But how- 
ever large may be the sum they hold, they often agree to sell on the next 
settling day a much larger sum, expecting that in the mean time they 
shall buy a large sum, and thus be able to set off one against the other. 
But sometimes, as the settling day approaches, they find this is not 
the case, and they are consequently under an engagement to " deliver," 
that is, sell, more stock than they hold. What can they do now ? They 
will try to get stock from those who have it, by agreeing to buy it of them 
now, and selling it at the ensuing account day, a month hence, at the 
same price ; thus abolishing the " continuation." When that is the case, 
a banker's broker will go to the banker and say, " If you like to lend 
your consols, you can get money for nothing till the next account day." 
The banker replies, " Well, I don't know that I can make much interest 
of the money just now ; but, as I can lose nothing, you may lend them." 
Thus the jobbers get their stock, and complete their engagements. But 
sometimes the jobbers are obliged to go further, and even to offer a pre- 
mium to parties who will lend their consols. This premium is called 
" Backadation " ; it is just the reverse of " continuation," and implies 
that the time price of stock is less than the money price. 

We have thus described the legitimate operations of the Stock Ex- 
change, so far as it may be necessary to explain the transactions of bank- 
ers in the employment of their surplus funds. Those operations called 
" Gambling in the Funds," and the mode in which the brokers and job- 
bers settle their accounts, we shall endeavour to describe when we come to 
speak of the Clearing-house. We will only add here the name and 
amount of each of the government stocks and annuities, as they stood on 
the 5th of January, 1848. 

Capital Stock of the Unredeemed Debt of the United Kingdom, on 5th January, 1848. 

Great Britain. 

Debt due to the South Sea Company, at 3 per cent., 

Old South Sea Annuities, ditto, 

New South Sea Annuities, ditto, 

South Sea Annuities, 1751, ditto, 

Debt due to the Bank of England, ditto, 

Bank Annuities, 1726, ditto, 

Consolidated Annuities, ditto, 

Reduced Annuities, ditto, 



Annuities at 3| per cent., 
New 5 per cent. Annuities, 



Total at 3 per cent., 



Total, Great Britain, 

Ireland. 

Irish Consolidated Annuities, at 3 per cent, 
Irish Reduced Annuities, ditto, 

Annuities at 3| per cent., .... 
Debt due to the Bank of Ireland, at 3^ per cent., 
New 5 per cent. Annuities, 



Total, United Kingdom, 
51 



£ 


s. 


d. 


3,662,784 


8 


64 


3,195,160 


17 


9 


2,195.867 


16 


9 


500,780 


11 


9 


11,015,100 








750.404 


IS 


6 


371,824,9S1 


15 


iii 


121,924,219 


8 


7 



515,069,299 17 91 

215,700,549 5 1 

430,076 3 2 

731,199,925 6 0| 



. 6,194,874 15 2 

128,295 16 9 

. 32,244,312 10 9 

2,630,769 4 8 

3,673 11 2 

£772,401,851 4 6£ 



A Treatise on Banking. 

The Annual Charge on the National Debt was then as follows : — 

Great Britain. Ireland. 

£ s. d. £ s. d. 

Interest on unredeemed debt, . . 22,483,850 13 1£ 1,329,895 17 6 

Annuities of all kinds falling due, . 3,685,696 6 5 160,394 2 1 

26,169,546 19 6£ 1,490,289 19 7 

Management, . . . 93,826 11 10 — 



Total 26,263,373 11 4\ 1,490,289 19 7 



Grand Total, . . £27,753,663 10 ll£ 

This is exclusive of £71,971 2s. 9fe?., the annual charge on stock and annuities of 
various kinds, standing in the names of the Commissioners, on account of stock un- 
claimed for ten years and upwards, and of unclaimed dividends, and also on account 
x>f donations and bequests, but which sum is not paid or provided for. 



Section VII. — THE ADMINISTRATION OF A BANK DURING 
A SEASON OF PRESSURE. 

A pressure on the money market may be defined a difficulty of getting 
money in the London market, either by way of discounting bills, or of 
loans upon government securities. This difficulty is usually accompanied 
by an unfavorable course of exchange, a contraction of the circulation of 
the Bank of England, and a high rate of interest. These three circum- 
stances have the relation to each other of cause and effect. The unfavor- 
able course of exchange induces the Bank of England to contract her cir- 
culation ; and the contraction of the circulation, by rendering money 
more scarce, increases its value, and leads to an advanced rate of interest. 
The removal of the pressure is in the same order, — the foreign ex- 
changes become favorable, the Bank of England then extends her circu- 
lation, money becomes more abundant, and the rate of interest falls. 
The degree to which the exchanges are unfavorable is indicated by the 
stock of gold in the Bank of England ; and when this is at its lowest 
amount the pressure may be considered to have attained its extreme 
point ; for as the amount of gold increases, the bank will extend her cir- 
culation, and the pressure will subside. (An Inquiry into the Causes of 
the Pressure on the Money Market during the year 1839, by J. W. 
Gilbart.) 

If we take a review of all the recent pressures on the money market, 
we shall find they have always been preceded by the following circum- 
stances. First, by abundance of money ; secondly, by a low rate of in- 
terest ; thirdly, by some species of speculative investments. The prin- 
cipal pressures that have occurred of late years, have been those of 
^25, 1836, 1839, and 1847. 

The following is Mr. Horsley Palmer's opinion of the causes of the 
pressure of 1825, as stated to the Bank Committee of 1832 : — 

" Will you state to the committee what, in your opinion, was the nature and the 
march of the crisis in 1825 ? — I have always considered that the first step towards the 

52 



Season of Pressure. 

excitement was the reduction of the interest npon the government securities. The 
first movement in that respect was, I think, upon £ 135,000,000 of five per cents., 
which took place in 1823. In the subsequent year, 1824, followed the reduction of 
£80.000,000 of four per cents. I have always considered that reduction of interests, 
one fifth in one case and one eighth in the other, to have created the feverish feeling in 
the minds of the public at large, which prompted almost every body to entertain any 
proposition for investment, however absurd, which was tendered. The excitement of 
that period was further promoted by the acknowledgment of South American republics 
by this country, and the inducements held out for engaging in mining operations, and 
loans to those governments, in which all classes of the community in England seem to 
have partaken almost simultaneously. With those speculations arose general specu- 
lation in commercial produce, which had an effect of disturbing the relative values be- 
tween this and other countries, and creating an unfavorable foreign exchange, which 
continued from October, 1824, to November,' 1825, causing a very considerable export 
of bullion from the bank, — about seven millions and a half. Commercial specula- 
tions had induced some bankers, one particularly, to invest money in securities not 
strictly convertible, to a larger extent than was prudent ; they were also largely con- 
nected with country bankers. I allude to the house of Messrs. Pole & Co. ; a house 
originally possessed of very great property, in the persons of the partners, but which 
fell with the circumstances of the times. The failure of that banking-house was the 
first decisive check to commercial and banking credit, and brought at once a vast 
number of country bankers, which were in correspondence with it, into difficulties 
That discredit was followed by a general discredit throughout London and the in 
terior." — p. 47. 

With regard to the pressure of 1836, there was in the beginning of 
that year no appearance of distress ; but, on the contrary, every symptom 
of prosperity, attended by its usual concomitant, a readiness to engage in 
speculative undertakings. 

The following description of this period is taken from the speech of 
Mr. Clay, on introducing his motion respecting Joint-stock Banks, May 
12, 1836 : — 

" To what extent the operations of the joint-stock banks may have contributed to 
create the present state of excitement in the commercial world, must, of course, be 
mere matter of conjecture. That they have had some considerable influence is proba- 
ble, from the fact that the excitement and rage for speculation is greatest in those parts 
of the kingdom where the operations of those establishments have been most active. 
London has been comparatively unmoved, but Liverpool and Manchester have wit- 
nessed a mushroom growth of schemes, not exceeded by the memorable year 1825. I 
hold in my hand a list of seventy contemplated companies for every species of under- 
taking, which have appeared in the Liverpool and Manchester papers within the last 
three months. This list was made a fortnight or three weeks since, and might prob- 
ably now be considerably extended. It is impossible also, I think, not to suspect 
that the facility of credit, and consequent encouragement to speculation, to which I 
have alluded, cannot have been without its effect in producing the great increase of 
price in almost all the chief articles of consumption and raw materials of our manu- 
factures. That increase has been enormous, — not less than from twenty to fifty, and 
even one hundred per cent, in many of the chief articles of produce, of consumption, 
and materials of our manufactures." 

These appearances continued with little alteration until the month of 
July, when the Bank of England raised the rate of discount to four and a 
half per cent. It then became known that there had been a demand upon 
the bank for gold from the preceding April, and this measure was adopt- 
ed by the bank as a means of rendering the foreign exchanges more fa- 
vorable. This being found ineffectual, the bank in September raised the 
rate of discount to five per cent. Besides raising the rate of interest, the 
bank adopted other measures of increasing the value of money. A large 

53 



A Treatise on Banking. 

amount of American bills upon first-rate houses had been offered for dis- 
count and rejected. A high degree of alarm was immediately spread 
throughout the community. The dread of a panic similar to that of 1825 
almost universally prevailed. Those who had money were unwilling to 
part with it ; trade became suddenly stagnant ; the prices of all commod- 
ities fell considerably ; and numbers of commercial houses, chiefly of the 
second class, suspended payment. Many railway and other projects now 
fell into oblivion. 

The alarm that existed was kept up by the monthly accounts of the 
bullion in the Bank of England. The public returns showed a gradual 
decline from April, 1836, to February, 1837. It was therefore supposed, 
that the Bank of England would be under the necessity, for her own 
safety, of still further contracting her issues, and thus increasing the ex- 
isting pressure. This apprehension caused all persons who had money 
to retain it in their possession, and bankers and others withheld accom- 
modation they would otherwise have been disposed to grant. 

This state of alarm was considerably augmented by the publication of 
the Report of the Secret Committee of the House of Commons upon Joint- 
stock Banks. This committee had been appointed on the motion of Mr. 
Clay, the Member for the Tower Hamlets, whose speech on the occasion 
might be termed a bill of indictment. The joint-stock banks had rapidly 
increased ; they had issued small shares ; they had large nominal capitals ; 
they had circulated an excessive amount of notes ; they had promoted 
speculation. These were the charges brought against them ; and they 
had greater weight, from being advanced by a member who was known to 
be friendly to joint-stock banking. The report of the committee appeared 
to sustain all Mr. Clay's accusations. This report was highly creditable 
to the talents and industry of the committee, but marked by a decided 
hostility of tone. While it enumerated all the actual or possible imper- 
fections of the joint-stock banks, it ascribed to them scarcely a single ex- 
cellence. At the same time, the committee deferred to the succeeding 
session the proposal of any measures for their improvement ; thus the 
public were led to suppose, that in the following session some astringent 
measures would be adopted with reference to joint-stock banks, but what 
they would be none could conjecture. 

Had the report appeared at any other period it might possibly have 
done good ; but as its appearance was contemporaneous with a pressure 
on the money market, and a high state of alarm, it unquestionably tended 
to weaken public confidence at a time when it required to be strengthened. 
Persons who were unfriendly to joint-stock banks seized the opportunity 
of dispraising them, and believed, or pretended to believe, that the banks 
were unsound, and would certainly stop payment. Others, who were 
friendly, were apprehensive that the banks, being still in their infancy, 
would be found too weak to withstand the storm now raised against them. 
But though this alarm began with respect to joint-stock banks it did not 
end there. It was soon foreseen that if a few joint-stock banks were to 
stop payment, the private banks in their neighbourhood would be put to a 
severe trial ; and if the banks should even be compelled to withhold their 
usual advances to their customers, the credit of individuals must suffer. 

54 



Season of Pressure. 

Hence the private bankers and the merchants, as well as the joint-stock 
banks, made preparations to meet any event that might occur, and by thus 
increasing the pressure on the London money market occasioned still fur- 
ther apprehensions. 

The alarm was augmented by the stoppage of the Agricultural and 
Commercial Bank of Ireland in the month of November, and the demand 
for gold which that stoppage occasioned in Ireland. The joint-stock 
banks of England now became subject to increased suspicions ; the ac- 
commodation they had been accustomed to obtain by the rediscount of 
their bills in the London market was considerably restricted ; and in the 
beginning of December, the Northern and Central Bank at Manchester, a 
bank having a paid-up capital of .£800,000, with above 1,200 partners, 
and forty branches, applied for assistance to the Bank of England. This 
was afforded upon condition, in the first instance, that they should wind 
up all their branches except that at Liverpool ; and afterwards further as- 
sistance was granted, upon condition they should discontinue business after 
February, 1837. Soon afterwards, the old and respectable London bank- 
ing-house of Messrs. Esdaile & Co. received assistance upon similar 
terms. 

The pressure which existed in England rapidly extended to America. 
A large amount of American securities, consisting chiefly of bonds of the 
respective States, had been remitted to the agency houses in England. 
This circumstance, in connection with the exportation of gold to America, 
attracted the notice of the Bank of England. A large amount of bills 
drawn from America upon first-rate London houses was rejected. In 
America the pressure became severe ; money was wanted to remit to 
England to meet the drafts that had been drawn upon England, either 
upon credit or against securities that could not now be sold. The rate 
of discount at New York rose to two, and even to three per cent, per 
month. 

From the pressure upon the money market, and from the great fall in 
the price of American produce, the cotton and other commodities sent 
from America to meet drafts upon the English agents could not be sold 
except at a ruinous loss. And other remittances not having arrived, sev- 
eral houses in the American trade, who were said to have given extensive 
credit to parties in America, applied for assistance to the Bank of Eng- 
land. ( The History of Banking in America ; with an Inquiry how far 
the Banking Institutions of America are adapted to this Country ; with a 
Review of the Causes of the recent Pressure on the Money Market. By 
J. W. Gilbart. 1837.) 

Such was the character of the pressure of 1836. We next proceed to 
the pressure of 1839. The pressure of 1836 may be said to have com- 
menced from the month of May in that year. From that month the stock 
of gold in the bank gradually and uniformly declined until February, 
1837, when it reached its lowest point of depression. From this point it 
uniformly advanced : the lowest point of the circulation was in Decem- 
ber, 1836, though even then it was not lower than it had been in the pre- 
ceding January. The bank raised the rate of interest from four to foui 
and a half per cent, in July, and to five per cent, in the following Sep- 
E 55 



A Treatise on Banking. 

tember. During the whole of the year 1837, the amount of gold in the 
Bank of England continued to increase ; the bank extended her circula- 
tion, and after the payment of the July dividends, money became very 
abundant, and the market rate of interest experienced a considerable fall. 
The foreign exchanges continued to be favorable during the early part of 
1838, and gold accumulated in the coffers of the Bank of England. In 
the spring of that year the directors of the Bank of England sent nearly a 
million of gold to America. Money became increasingly abundant, and 
the rate of interest fell. In February the bank reduced their rate of dis- 
count to four per cent, and the interest on the loans granted during the 
shutting of the funds was reduced in March to three and a half per cent. 
The low rate of interest caused large sums of money to be invested in 
American securities. Bonds of all kinds issued by the Bank of the United 
States, by the various States in the Union, and by numerous private un- 
dertakings, were poured upon the English market, and found eager pur- 
chasers. Several of the directors of the Bank of England, in their indi- 
vidual character as merchants, became agents for the distribution of these 
securities. About July the exchanges became unfavorable, and in the 
latter part of the year some symptoms of uneasiness were apparent in the 
money market ; but as the stock of bullion in the Bank of England was 
considerable, and the directors granted their usual loans in December at 
three and a half per cent., public confidence was not shaken. In the be- 
ginning of the year 1839 the exchanges became increasingly unfavorable, 
and the monthly returns of the bank showed a gradual diminution in the 
stock of gold. The price of corn rose so high as to admit of foreign 
wheat at the lowest rate of duty. This occasioned a further demand for 
gold to be exported. The stock of gold in the Bank of England rapidly 
declined, until, in the month of October, it was no more than £ 2,525,000, 
while the liabilities of the bank upon notes amounted to £ 17,612,000, and 
upon deposits to £ 6,734,000. The bank directors were very anxious to 
stop this demand for gold. With this view they raised the rate of interest 
on May 16th to five per cent., on June 20th to five and a half per cent., 
and. on August 1st to six per cent. ; and they charged the same rate upon 
their short loans. They are supposed to have sold large amounts of gov- 
ernment stock and exchequer bills, and on July 13th they announced that 
they were ready to receive proposals for the sale of the dead weight. 
None of the offers, however, met their approbation. Finding these meas- 
ures not speedily effective, an arrangement was made with the Bank of 
France for a loan of £ 2,500,000. Messrs. Baring & Co. drew bills on 
account of the Bank of England upon houses in Paris for this amount, 
which the Bank of France undertook to discount. The directors also de- 
termined to refuse to discount any bills drawn or indorsed by any private 
or joint-stock bank of issue. Notwithstanding these measures, the stock 
of gold in the bank continued to decrease until the 18th of October, when 
it reached the lowest point of depression. From this point it continued to 
advance, and the pressure began gradually, but slowly, to subside. 

It may be useful to notice the differences between the pressure of 1836 
and that of 1839. If we measure the intensity of the pressure by the 
difference between the largest and the lowest stock of gold in the 

56 



Season of Pressure. 

Bank of England, the former pressure will range from .£7,801,000 to 
.£4,032,000, and the latter from £ 10,126,000 to £2,525,000. In the 
pressure of 1836, one joint-stock bank, a London private bank, two coun- 
try private banks, three large American agency houses, and a great many 
respectable merchants, stopped payment. In the pressure of 1839, there 
was scarcely a failure until the month of December, and then only among 
the second class of traders. In the pressure of 1836, the prices of nearly 
all commodities fell considerably, and almost immediately. In the pres- 
sure of 1839, the prices of most commodities remained for a length of 
time nearly the same. In 1836, the Bank of England did not raise their 
rate of interest above five per cent. In 1839, the rate of interest upon 
both discounts and loans was raised to six per cent. In 1839, the bank 
gave notice that they were willing to sell the dead weight, and they made 
arrangements for borrowing £ 2,500,000 sterling from the Bank of France. 
In 1836, the bank adopted neither of these measures. In 1836, the Bank 
of England rejected all bills drawn or indorsed by joint-stock banks of 
issue. In 1839, they rejected also all bills drawn and indorsed by private 
banks of issue. (An Inquiry into the Causes of the Pressure of 1839.) 

The consideration of the pressure of the year 1847 we shall postpone 
to the next section of our work. 

From the statements we have made, it would appear that a season of 
pressure is always preceded by one of speculation ; and hence it follows 
that a banker who wishes to be easy in a time of pressure must act wisely 
in the previous season of speculation. It requires no ordinary firmness to 
do this. To act wisely in a season of speculation is far more difficult 
than to act wisely in one of pressure. But unless a banker act wisely in 
the previous time of speculation, his wisdom will probably be of little 
avail when the pressure arrives. 

While, therefore, money is still abundant, the public funds high, and 
other bankers liberal in accommodation, he should be doubly cautious 
against taking bills of a doubtful character, or making advances upon 
irregular securities. He should not suffer the desire of employing his 
funds, or the fear of offending his customers, to induce him to deviate 
from sound banking principles. He should also take this opportunity of 
calling up all dead or doubtful loans, and of getting rid of all weak cus- 
tomers. He should also, under any circumstances, avoid making ad- 
vances for any length of time, and investments in securities that are not 
at all times convertible, or the price of which is likely to sustain a great 
fall on the occurrence of a pressure. The discount of first-rate commer- 
cial bills having a short time to run, or short loans on stock or other unde- 
niable security, however low the interest received, seem to be the most 
safe and advantageous transactions. 

When the aspect of affairs seems to threaten that money will be still 
more in demand, and the failure of a number of merchants and traders 
may consequently be apprehended, it behoves him to prepare for ap- 
proaching events by avoiding all discounts of bills of an inferior class, and 
by keeping his funds in an available state. With a view to these objects, 
he will review all his loan and discount accounts, call up his loans of long 
standing, where it can be done without injury to the interest or reputation 

57 



A Treatise on Banking. 

of his bank, avoid all overdrawn accounts, and reduce the amount of dis 
counts on the inferior class of accounts. In performing these operations 
he will exercise due judgment and discretion, making proper distinctions 
between his customers, and reducing chiefly those bills which are of an 
unbusiness character, or which are drawn upon doubtful people, or upon 
parties that he knows nothing about ; he will also mark particularly those 
accounts which require large discounts, but keep no corresponding balance 
to the credit of their current accounts. 

As the pressure advances, he will find that there are three demands 
upon his funds. First, his customers will reduce their balances, and keep 
less money in his hands. Money lodged at interest will be taken away, 
because the parties can make higher interest elsewhere, or they will be 
tempted by the low price of stock to invest it in government securities. 
Secondly, he will have a greater demand for loans and discounts, not 
merely from weak people whom he might not care about refusing, but 
from persons of known wealth, whom it is his interest and his inclination 
to oblige. Thirdly, he will think it prudent to guard against sudden de- 
mands by keeping a larger amount of bank notes in his till. To meet all 
these demands, he will he compelled to realize some of his securities, and 
he will realize those first on which he will sustain no loss. 

If a banker has money lying at demand with a bill-broker, he will now 
have occasion to call it in. If he has money lent at short periods at the 
Stock Exchange, he will, as he has occasion, take in the money as the 
loans fall due. If he has discounted brokers' bills, he will receive the 
amounts when due, and discount no more. Should these operations not 
be sufficient to meet the demands upon his funds, he will then sell his 
stock or exchequer bills, or borrow on them in the money market. A 
country banker who has kept his reserve in bills of exchange will be 
anxious to rediscount them, and will think himself lucky if he can do so 
readily and at a moderate rate of interest. 

It will be useless for a banker to attempt to call up dead loans, or to re- 
duce his discounts, after the pressure has commenced. He should have 
thought of these matters in the previous season of abundance. As he 
cannot get in any outstanding advances, he had better not ask for them, 
but merely charge the parties an increased rate of interest. If he demand 
the money, he will not get it, and he may give rise to a surmise that he 
is short of funds. This season of pressure is, however, a good opportunity 
for calling up advances, or getting rid of connections that he would, on 
other grounds, like to be without. The " scarcity of money," the " pres- 
sure on the money market," are capital reasons to assign for refusing ap- 
plications which, even otherwise, he would refuse, and for calling up loans 
which, under any circumstances, he would like to see repaid. 

During a pressure, a banker will have to give a great many refusals, 
and some discretion will be necessary in the form of giving these refusals. 
Let him refuse in what way he may at such a season, he will be sure to 
give offence. And the party refused will possibly publish the refusal, and, 
from motives of ignorance or malignity, represent the refusal as having 
arisen from want of means, and possibly may circulate a report that the 
banker is about to stop payment. Hence rumors about banks are always 

58 



Season of Pressure. 

rife in seasons of pressure, and they add to the general want of confidence 
which then prevails. , 

During a pressure, a banker will have offers of new accounts to be 
transferred from other bankers, provided he will consent to make certain 
advances. Some caution must be exercised in this matter. It is quite 
possible that some perfectly safe parties, having large accounts, may be 
disposed to remove in consequence of their present bankers not being 
equal to the supply of their wants. In this case, the banker will be regu- 
lated by the value of the proposed account, and the extent of his own 
means. On the other hand, it is equally possible that weak people, to 
whom their present bank might not, in any case, have given advances, 
may use the " scarcity of money " as a pretext for making application to 
a new banker, stating their belief that their old banker was unable to meet 
their requirements. It behoves a banker to use much discretion in such a 
case, especially if it be a large account. If he errs at all, he should err 
on the side of caution. 

It will rarely be wise for a banker in a season of pressure to attempt to 
get away the customers of other bankers by offering them greater accom- 
modation. The best way of getting new connections is to treat well those 
that he has. It is better for a banker to employ his funds in supporting 
his old friends than in attempting to get new ones. If his funds are so 
ample that he can do both without inconvenience, very well. But caution 
is necessary in taking new accounts at this time, and he should be doubly 
cautious in making applications to parties. Unless he has the most ample 
and satisfactory information as to their circumstances, he had better wait 
until they apply to him. It would then devolve upon them to satisfy him 
that he would be justified in making the advances required. 

During the pressure, a banker will find that some of his wealthier cus- 
tomers, who, when money was abundant, took their bills to be discounted 
by a bill-broker, because he would cash them at a lower rate, will come 
back, and expect to have discounts from their banker. This is no fault of 
the bill-brokers. People put money in their hands avowedly for tempo- 
rary purposes. In seasons of abundance the bill-brokers are glutted with 
money. When the pressure commences this money is withdrawn. The 
consequence is, that in seasons of abundance the bill-brokers will discount 
at a lower rate than the bankers, and when money is scarce they discount 
at a higher rate, and in many cases not discount at all. Sharp-sighted 
people, who are acquainted with the London money market, will, when 
money is abundant, take all their first-rate bills to a bill-broker, and send 
to their banker all their inferior bills, which a bill-broker would not take. 
Now, if a banker has occasion to curtail his advances in seasons of pres- 
sure, he should begin with people of this sort. But if he has ample means, 
and the parties are wealthy, he may deem it worth his while to take their 
bills, charging a high rate of interest, and gently reminding them of their 
former delinquencies. Exhortations to good behaviour have always a 
greater effect when administered in seasons of affliction. And reproof at 
this time to a party who had thus wandered, may induce him to pursue in 
future a more righteous line of conduct. 

During a pressure, a banker will find that some of his customers will 

59 



A Treatise on Banking. 

get into difficulties, and will apply to him for assistance. He will ofteh. be 
at a loss to decide whether he should or should not grant the assistance 
required. This hesitation will arise from his doubls as to the extent to 
which he can prudently rely upon the calculations and anticipations of his 
customer. The party states that he must immediately stop payment un- 
less he has assistance ; but he has abundance of property, and his difficul- 
ties arise only from not being able to realize it. If he has a certain sum 
he can then go on comfortably. The banker grants him this sum. After 
a while, he comes again, and states he must now stop unless he has a fur- 
ther sum. The banker hesitates, but ultimately gives him this further 
sum. He comes a third time, and states he has not yet got enough ; and 
not being able to get more, he then stops, leaving the banker at best with 
a large lock-up, and probably with an ultimate loss. 

During a pressure, those banks that allow interest on deposits will be 
asked for a higher rate of interest. It is quite right that those parties who 
have had deposits at the bank for some time, should receive a higher rate 
of interest, proportionate to the increased value of money. But it may be 
questioned whether it is worth while to receive further lodgments, during 
a pressure, at a high rate of interest, unless they are lodged for a fixed 
period. For, should the pressure increase, these sums are sure to be with- 
drawn, or else applications will be made for a higher rate of interest than 
the banker can prudently give. Nor must it be forgotten that it is not 
wise for a banker to give, during a panic, an extravagant rate of interest. 
Should he do so, he will give rise to an opinion that he is short of funds, 
and this may cause more deposits to be withdrawn than he would obtain 
from his high rate of interest. 

During a pressure, a banker will pay considerable attention to the pub- 
lished returns of the Bank of England. The increase or diminution of the 
gold and silver in the issuing department will show the progress of the 
pressure. As these increase, money will become less scarce, the rate of 
interest will fall, and the pressure will subside. In this department, it is 
the progress of increase, or diminution, more than the actual amount, that 
should be the main object of attention. The banking department resem- 
bles any other bank. Its means are the paid-up capital, the real or sur- 
plus fund, the public deposits, the private deposits, and the seven-day bills. 
These means are employed in public securities, private securities, and 
cash in the till. Its ability to make advances, at any given time, depends 
on the amount of cash in the till. The diminution of this amount shows 
the increase of the pressure, and the banker will act accordingly. 

As far as past experience goes, all panics or pressures have resulted in 
a subsequent abundance of money. It would be a grand thing for a 
banker if he could know beforehand at what precise point this change 
would take place. But this he cannot know, and he had better not specu- 
late on the subject, but just follow the course of events as they occur. 
When, however, the point is fairly turned, he will act wisely in investing 
all his surplus funds in such convertible securities as are likely to advance 
in price, from the increasing low rate of interest. Exchequer bills are 
most likely to be the first affected, and then the public funds. He will, 
also, be more liberal in granting discounts, and other advances, and he 

60 



The Bank Act of 1844. 

will lower the rate of interest at which he takes deposits. At the same 
time he will be cautious in the bills he discounts. For, though money 
may be abundant, yet trade may be depressed, and the effects of the pre- 
vious panic may be the failure of a great number of persons in the middle 
class of society. The banker will therefore be cautious in extending his 
discounts, except on bills of an undoubted character. 

We will observe, lastly, that, in a season of pressure it is peculiarly ne- 
cessary that a banker should pay regard to the state of his own health, and 
to the discipline of his own mind, so as to guard against any morbid or 
gloomy apprehensions with regard to the future. He should attempt tc 
form a cool and dispassionate judgment as to the result of passing events ; 
endeavouring so to arrange his own affairs as to be prepared for whatever 
may occur, but taking care not to increase the present evil by predicting 
greater calamities. If he suffer a feeling of despondency to get the mas- 
tery of his mind, he will be less able to cope with the difficulties of his 
position. He will then, probably, refuse reasonable assistance to even 
first-rate customers, realize securities unnecessarily at a heavy sacrifice, 
and keep in his till an amount of unemployed treasure excessively dispro- 
portionate to the extent of his liabilities. This will increase the pressure. 
Fear, too, is always contagious. A banker of this melancholy tempera- 
ment will impart his apprehensions to others, and thus the panic will be- 
come more widely extended. 



Section VIII. — THE ADMINISTRATION OF A BANK UNDER 
THE ACT OF 1844. 

It would not be consistent with the practical character of this work to 
discuss, at great length, any theory of the currency. But the Act of 1844, 
though founded on a theory, was a practical measure, and has so impor- 
tant a bearing on the administration of banking affairs, that our work would 
be regarded as incomplete were the subject altogether omitted. We shall. 
however, endeavour to avoid any observations on its theory, and confine 
our remarks, as much as we can, to the operation of its practical enact- 
ments. In this part of our work it will be necessary to consider only 
those provisions of the Act which refer to the issue of notes by the Bank 
of England : those which refer to the country circulation will more prop- 
erly come under review in the section upon Country Banks. It may also 
be proper to remark, that, in our judgment, the Act of 1819 has no neces- 
sary connection with the Act of 1844 ; "nor would there be any inconsis- 
tency in advocating the one and not advocating the other. (Commons, 
3,409.) 

" The Act of 1844 " is the 7 & 8 Vict. cap. 32, and is entitled, 
" An Act to Regulate the Issue of Bank Notes, and for giving to the Gov- 
ernor and Company of the Bank of England certain privileges for a lim- 
ited period." It enacts that, from and after the 31st August, 1844, the 

61 



A Treatise on Banking. 

Issue department of the Bank of England shall be separated from the 
Banking department ; that the issuing department may issue notes to the 
extent of £ 14,000,000 upon securities set apart for that purpose, of 
which the debt of .£11,015,100 due from the government to the bank 
shall form a part ; that no amount of notes above £ 14,000,000 shall be 
issued, except against gold coin, or gold or silver bullion ; and that the 
silver bullion shall not exceed one fourth the amount of gold coin and bul- 
lion. Any person is entitled to demand notes from the issuing depart- 
ment, in exchange for gold bullion, at the rate of £3 17s. 9d. per ounce. 
Should any banker discontinue his issue of notes, the Bank of England 
may, upon application, be empowered by an Order of Council to increase 
her issue upon securities to the extent of two thirds of the issue thus with- 
drawn ; but all the profit of this increased issue must go to the govern- 
ment. 

The theory on which this act was founded, had, for several years pre- 
viously, been brought before the public in pamphlets written by men of 
distinguished talent. Upon some of these pamphlets we wrote a critique, 
which appeared in the " Westminster Review" of January, 1841. That 
article was afterwards published separately, under the title of " Currency 
and Banking : a Review of some of the Principles and Plans that have 
recently engaged public attention with reference to the administration of 
the Currency." In this review we made the following observations on 
the plan then proposed, and subsequently carried out in the act of 
1844: — 

" The plan of making the amount of the circulation fluctuate in exact correspondence with the 
amount of gold in the Bank of England. 

" This plan is open to the following objections : — 

" I. Upon this plan there must be a perpetual increase and diminution in the stock 
of gold ; consequently, a perpetual increase and diminution in the amount of the cur- 
rency. The increase in the amount of the currency would raise prices and stimulate 
speculation. The diminution in the amount of the currency would reduce prices and 
produce distress. And thus there must be a constant alternation from high prices to 
low prices, and again from low prices to high prices, — from speculation to distress, 
and from distress to speculation. 

" 2. But depression of prices, and their attendant miseries, may not be experienced 
only when the foreign exchanges are unfavorable. Excessive caution, an apprehen- 
sion of war, or political feeling, may cause a domestic demand for gold, and this would 
cause for a while a contraction of the currency as severe as that which would arise 
from an unfavorable exchange ; and, as the bank directors would have no discretionary 
power, but would be required ' to adhere to principle,' by giving gold for notes, or 
notes for gold, they could do nothing to assuage these calamities. According to 
Mr. Loyd,* a drain, from whatever cause it may arise, must be met by a contraction of 
the currency. Mr. Palmer, in laying down his rule, put in a saving clause, — ' except 
under special circumstances,' — but Mr. Loyd makes no exceptions. 

"3. To carry this system into operation would require a separation of the issuing 
department from the other departments of the business of the bank, and this would 
cause still further inconveniences. The management of the issuing department would 
be exceedingly simple. The office of the directors would be a complete sinecure, and, 

* I wish I could have made this quotation without introducing the names. It would 
greatly assist our inquiries after truth, and lead to the formation of an independent 
judgment, if we could engage in discussions of this kind without any reference to these 
talented men who may have distinguished themselves as either the advocates or the 
opponents of the doctrines we investigate. 

62 



The Bank Act of 1844. 

for any thing they would have to do, their places might be as well supplied hy four- 
and-twenty broomsticks. A few cashiers to exchange gold for notes, or notes for 
gold, would be all the establishment required ; and could Mr. Babbage be induced to 
construct a 'self-acting' machine to perform these operations, the whole business of 
the currency department might be carried on without human agency. But the deposit 
department would require more attention. ' It is in the nature of banking business,' 
says Mr. Loyd, ' that the amount of its deposits should vary with a variety of circum- 
stances ; and, as the amount of deposits varies, the amount of that in which those de- 
posits are invested (viz. the securities) must vary also. It is therefore quite absurd to 
talk of the bank, in its character of a banking concern, keeping the amount of its secu- 
rities invariable.' As therefore the deposits might vary, the bank would be a buyer or 
a seller of government securities ; and, as these variations are sometimes to a very 
large amount, the fluctuations in the price of the public funds and of exchequer bills 
would be very considerable. Thus the property of those who held these securities 
would be always changing in value. Again, the deposits would be withdrawn chiefly 
in seasons of pressure, and the bank would then be compelled to sell her securities. 
But suppose the scarcity of money should be so great that the securities would be un- 
salable even at a reduced price, how then could the bank pay off her deposits I 

" 4. If the currency were administered upon this principle, the bank would be unable 
to grant assistance to the commercial and manufacturing classes in seasons of ca- 
lamity. 

" Mr. Loyd exclaims, * Let not the borrowers of money, government, and commerce 
approach, with their dangerous and seductive influences, the creator of money.' But 
with all deference to Mr. Loyd, we contend that it is the province of a bank to afford 
assistance to trade and commerce in seasons of pressure. Mr. Loyd, as a practical 
banker, would no doubt afford assistance to his own customers in such seasons ; and 
if this be the province and duty of a private banker, the duty is more imperative on a 
public banking company, and more imperative still on a bank invested by the legisla- 
ture with peculiar privileges for the public good. Mr. Loyd says, 'Let the bank afford 
this assistance out of her own funds.' But, under Mr. Loyd's system, she could grant 
assistance only by selling securities ; and what relief would she afford by selling securi- 
ties with one hand, and lending out the money with the other ? Besides, it is certain 
that, under such a pressure as Mr. Loyd's system must occasionally produce, these se- 
curities would be salable at even any price? 'But,' says Mr. Loyd, 'individuals may 
afford this assistance.' In seasons of pressure few individuals have more ample funds 

than what are necessary for the supply of their own wants "When the distress 

is caused by a contraction of the currency, it can only be removed by an increased 
issue of notes. And there are many cases, such, for instance, as that of the Northern 
and Central Bank, in which assistance can only be effectually rendered in this manner. 

" We consider that any system of administering the currency, which prohibits the 
banking institutions of the country from granting relief to the commercial and manu- 
facturing classes, must be unsound. We should condemn such a system at once, even 
if we could not detect the fallacies on which it was founded. In political economy we 
can judge of principles only by their practical effects, and any system which produces 
these effects must be unsound. When seasons of calamity occur, it is not for the na 
tional bank to exclaim, Sauve qui peut. They ought to cooperate with the government 
in attempting to relieve the distress, and to preserve the tranquillity of the country." 

These remarks, written in the year 1841, might, if put into the past 
tense, almost serve for a history of the year 1847. The act of 1844 was 
formed upon the principle which is here condemned ; and the effects de- 
scribed have actually occurred. There have been great fluctuations in 
the amount of the circulation, in the rate of interest, and in the prices of 
the public securities. There have been great speculations, followed by 
great distress. The government funds have, in large amounts, been un- 
salable ; and the bank has been unable to afford relief to the commercial 
classes. A severe pressure has taken place ; and, in consequence of this 
severe pressure, the act was suspended. It has been denied that this 
pressure was produced or increased bv the act. But how stand the facts ? 

63 



A Treatise on Banking. 

The act was passed, and, as predicted, a pressure came : the act was 
continued, and the pressure increased : the act was suspended, and the 
pressure went away. These are not opinions ; they are facts. 

At the meeting of Parliament in the latter end of 1847, committees 
were appointed by both the House of Lords and the House of Commons, 
to " inquire into the causes of the distress which has for some time pre- 
vailed among the commercial classes ; and how far it has been affected 
by the laws for regulating the issue of bank-notes payable on demand." 
The following is an extract from the report of the Lords' Committee as to 
the causes of the pressure : — 

" A sudden and unexampled demand for foreign corn, produced by a failure in many 
descriptions of agricultural produce throughout the United Kingdom, coincided with 
the unprecedented extent of speculation produced by increased facilities of credit and 
a low rate of interest, and had for some time occasioned over-trading in many branches 
of commerce. This was more especially felt in railroads, for which calls to a large 
amount were daily hecoming payable, without corresponding funds to meet them, ex- 
cept by the withdrawal of capital from other pursuits and investments. These causes 
account for much of the pressure under which many of the weaker commercial firms 
were doomed to sink, and which was felt even by the strongest. To these causes may 
be added a contemporaneous rise of price in cotton ; and, with respect to houses con- 
nected with the East and West India trade, a sudden and extensive fall in the price of 
sugar, by which the value of their most readily available assets underwent great depre- 
ciation. 

" Some of these causes are obviously beyond the reach of legislative control. But 
upon those which are connected with the extension of commercial speculation, en- 
couraged or checked by the facility or the difficulty of obtaining credit, by the advance 
of capital and the discount of bills, the powers and position of the Bank of England 
must at all times enable that corporation to exercise an important influence. The com- 
mittee have consequently felt it to be their duty to inquire into the course pursued by the 
bank acting under the provisions of the 7 and 8 Vict. c. 32, and they have come to the 
conclusion that the recent panic was materially aggravated by the operation of that 
statute, and by the proceedings of the bank itself. This effect may be traced, directly, 
to the act of 1844, in the legislative restriction imposed on the means of accommoda- 
tion, whilst a large amount of bullion was held in the coffers of the bank, and during a 
time of favorable exchanges ; and it may be traced to the same cause, indirectly, as a 
consequence of great fluctuations in the rate of discount, and of capital previously ad- 
vanced at an unusually low rate of interest. This course the bank would hardly have 
felt itself justified in taking, had not an impression existed that, by the separation of 
the issue and the banking departments, one inflexible rule for regulating the bank 
issues had been substituted by law in place of the discretion formerly vested in the 
bank." 

The nature and extent of the pressure is thus described by the Gov- 
ernor and Deputy-Governor of the Bank of England : — 

" The panic began by the failures in the corn trade. The price of wheat had risen 
to about 120s. Large arrivals of grain from the continent of Europe and from Amer- 
ica, coupled with the prospect of an early and abundant harvest, caused a sudden fall 
in price to about 60s., with a corresponding decline in Indian corn. The failure of 
most of the corn speculators followed this great reduction in price, and their failure 
caused the stoppage of an eminent discount broker having a large country connection. 
This latter failure, by closing one of the principal channels of discount between the 
country and London, caused distrust to extend into the country. Credit became af- 
fected by these failures, and several London firms of high standing also failed. Then 
followed in rapid succession the failure of the Royal Bank of Liverpool, the Liverpool 
Banking Company, the North and South Wales Banking Company, some private 
country banks, and the Union Bank of Newcastle, followed by a tremendous run upon 
the Northumberland and Durham District Bank. To these disasters succeeded alarm, 
and an almost total prostration of credit. The London bankers and discount brokers 

64 



The Bank Act of 1844. 

refused to grant the usual accommodation to their customers, and necessarily obliged 
every one requiring assistance to resort to the Bank of England. Money was hoarded 
to a considerable extent ; so much so, that notwithstanding the notes and coin issued 
to the public in October exceeded by £4,000,000 or £5,000,000 the amount with tbe 
public in August, still the general complaint was of a scarcity of money. Credit was 
so entirely destroyed, that houses trading to distant countries carrying on their busi- 
ness through the means of credit, by a renewal of their acceptances as they became 
due, were no longer able to meet their engagements, and were forced to stop payment- 
This was the state of things previous to the issuing of the government letter in 
October." {Lords, No. 12.) 

The Committee of the House of Commons delivered a report in favor 
of the continuance of the bill without alteration, in opposition to the opin- 
ions of by far the majority of the witnesses who were examined. 

Those witnesses who are friendly to the act contend that it has se- 
cured the convertibility of the Bank of England note, — that this conver- 
tibility was endangered in 1825, in 1837, and in 1839, and would have 
been endangered in 1847 but for this act. (See the Evidence before the 
Committee of the House of Lords, Questions Nos. 1406 to 1409, and 
No. 3169.) 

By the phrase " securing the convertibility of the note " it is not meant 
that the issue department of the Bank of England held a sufficient amount 
of gold and silver to pay off all the notes it had issued. It is obvious that 
the gold and silver in hand must always be fourteen millions less than this 
amount, inasmuch as fourteen millions of notes are issued against securi- 
ties. By "securing the convertibility of the note" is meant, that the 
issue department of the Bank of England was in a condition to pay off 
any amount of notes of which payment was likely to be demanded for the 
purpose of exporting the gold ; the issue department was always in a con- 
dition to meet any foreign demand for gold. This is called " securing 
the convertibility of the note." 

It has been contended, that the act has retained in the vaults of the 
Bank of England a larger amount of gold and silver than would otherwise 
have been retained. And as this amount is set apart for the express pur- 
pose of paying the notes, their payment is so far additionally secured. 
On the other hand, it has been maintained that, by thus reserving all the 
gold to pay the notes, we endangered the payment of the deposits. And 
had the banking department stopped payment, a domestic run would have 
taken place upon the issuing department, and thus the payment of the 
notes would still have been endangered. 

The following is the evidence of a director of the Bank of Liverpool 
upon the subject : — 

" With regard to securing the convertibility of the notes, what is your opinion of the 
bill? 

" I do not think it has secured the convertibility of the notes at all. The notes re- 
mained convertible up to the suspension of the bill ; but I believe that if the bill had 
not been suspended then, or some similar measure adopted, notes would have ceased 
to be convertible. Looking to the general state of things throughout the country, and 
to what I know to have been the state of things in London, and the position of trade 
generally, — to the alarm that was spreading rapidly through the country, and to the 
fact that the power of the bank had been reduced to such a point, that if there had 
been any apprehension of the failure of the country banks, it could not further support 
them, and that very little might have occasioned (I might perhaps go further, and say, 

65 



A Treatise on Banking. 

would have occasioned) the failure of banks in large towns and in the country; believ- 
ing that if one or two country banks of any magnitude had failed, alarm would have 
spread throughout the kingdom, or if one or two London banks had failed, consterna- 
tion would have been general ; seeing, also, the considerable amount of reserve in the 
hands of the country bankers and joint-stock banks, and the necessity that there would 
have been of having that reserve as early as possible converted into gold if the bank 
was obliged to stop; seeing that a reserve of £20,000 for each of three hundred coun- 
try banks would have taken six or seven millions, or of £15,000 each would have 
taken five millions ; and that if the run for gold had once begun, it would probably 
have gone on till the treasury was drained ; seeing all this, my firm opinion is, that 
the bill of 1844 has not secured convertibility, and I state the grounds on which that 
opinion is formed." (Commons, No. 94.) 

It seems useless at present to speculate upon such a state of things, as 
we now know that before the pressure arrived to such a height as to cause 
the banking department to stop payment, the act would be suspended. 
But it seems fair to ask, whether the precautions of the act are not dispro- 
portionate to the danger ? We ought to consider not merely the great- 
ness of the evil, but also the probability of its occurrence ; and is it wise 
to inflict upon ourselves a vast number of serious evils merely to guard 
against a danger that may never occur ? It may further be asked, wheth- 
er the stringent measures that were necessary last year to keep the bank- 
ing department from stopping payment, would not have been equally ef- 
fectual under the previous state of the law in preserving the convertibility 
of the notes ? 

It should be recollected, too, that previous to the passing of the act of 
1844, the bank had the power of rectifying the exchanges by means of 
foreign credits, as they did in the year 1839. (Several of the witnesses 
made suggestions for rectifying this exchange by other means than the 
exportation of gold. See Commons, 97, 2018, 2023, 2579, 2614, 2620.) 
But the directors, being now relieved from all responsibility with regard to 
the issue department, have no inducement to engage in such an operation. 
Indeed, they might be censured for interfering with the principle of the 
act, that the exchanges shall be rectified by a transmission of gold and 
silver. 

It would appear from the evidence, that the sole advantage now claimed 
for the act is, that it has secured the convertibility of the note. Other ad- 
vantages, however, were expected to result. Those expectations are thus 
disposed of in the report of the Lords' committee : — 

" It is true that to those who may have expected that the 7 and 8 Vict. c. 32, would 
effectually prevent a recurrence of cycles of commercial excitement and depression, 
the contrast between the years 1845 and 1847 must produce a grievous disappoint- 
ment. To those who anticipated that the act would put a check on improvident 
speculation, the disappointment cannot be less, if reliance is to be placed (as the com- 
mittee are confident it may) on the statement of the governor of the bank, and of other 
witnesses, that ' speculations were never carried to such an enormous extent as in 
1846 and the beginning of 1847.' If the act were relied on as a security against vio- 
lent fluctuations in the value of money, the fallaciousness of such anticipation is con- 
clusively proved by the fact, that whilst the difference between the highest and lowest 
rate of discount was in the calamitous years 1837 and 1839 but 2£ to 2$ per cent., the 
difference in 1847 rose to 6|. If it was contemplated that the number and the extent of 
commercial failures would have been lessened, the deplorable narrative of the governor 
of the bank, recording the failure of thirty-three houses comparatively in large busi- 
ness, in London alone, to the amount of £8,129,000 is a conclusive reply. If the 

66 



The Bank Act of 1844. 

enormous extent to which railroad speculation has heen carried be considered as an 
evil to which a sound system of banking could have applied a corrective, such a cor- 
rective has not been found in an act, since the passing of which, during a period of 
three years, an increased railway capital of upwards of £221,000,000 has been author- 
ized to be raised by Parliament ; and when the enormous sum of £ 76,390,000 is stated, 
on high financial authority, to have been actually expended on railways in two years 
and a half. If the power of obtaining banking accommodation on moderate terms 
were considered to be promoted by the act of 1844, it cannot be said that this im- 
portant object has been attained, since it appears in evidence that in 1847, in addition 
to an interest of 9 or 10 per cent., a commission was also frequently paid, raising the 
charge to 10, 20, or 30 per cent., according to the time which bills had to run." 

The report might have added, that if it was expected that the amount 
of notes in the hands of the public would fluctuate in exact correspon- 
dence with the fluctuations in the amount of gold in the Bank of England, 
that expectation has not been fulfilled. From the censure cast on the 
Bank of England, before the act was passed, for not producmg this cor- 
respondence, it may be inferred that such an expectation was entertained. 
{Evidence taken before the Committee on Banks of Issue, Nos. 2677, 
2713.) 

Those who are opposed to the act of 1844 bring against it the following 
accusations : — 

First. The Act of 1844 is accused of having produced an abundance 
of money and a low rate of interest, and thus stimulated to excessive spec- 
ulation. We showed, in the last section, that these are always the precur- 
sors of a pressure. 

According to this Act, all persons are entitled to demand from the issue 
department of the Bank of England, Bank of England notes in exchange 
for gold bullion at the rate of £3 lis. 9d. per ounce of standard gold. 
When, therefore, the foreign exchanges are favorable to the importation 
of gold, this gold, consisting of gold bars and foreign gold coin, which 
could not be used as money in this country, is taken to the issue depart- 
ment, and instantly converted into Bank of England notes. The amount 
of notes is thus increased beyond what the transactions of the country re- 
quire. Money becomes plentiful, the rate of interest falls, and the low 
rate of interest gives facilities to speculative undertakings. 

It must be acknowledged that, previous to the passing of this act, the 
bank directors had adopted the principle of purchasing all foreign gold 
that might be offered them at £3 lis. 9d. an ounce ; and it formed a fea- 
ture of their system of management, as explained before a committee of 
the House of Commons in the year 1832. When the advocates of the 
act say that it is only during a season of pressure that the act comes into 
operation (Commons, 5121), they can mean only that it is during such a 
season that the system established by the act differs from the system pre- 
viously in existence. The act is as much in operation when it gives out 
notes as when it gives out gold. 

It must also be acknowledged that on the 31st August, 1844, when 
the act came into operation, there was a large amount of gold in the bank, 
and a low rate of interest consequently prevailed. This gold had accu- 
mulated, not literally in consequence of the act, but in consequence of the 
principle embodied in the act. From the adoption of this pilnciple, the 

67 



A Treatise on Banking. 

gold in the vaults of the bank still further increased after the passing of 
the act. 

It must be further acknowledged, that although the act requires the 
issue department at all times to issue notes against gold, it does not require 
that the Bank of England shall at all times issue £ 14,000,000 against 
securities. The act merely requires that the amount shall not exceed 
£ 14,000,000. And a London banker who was examined as a witness 
before the Lords' Committee, said he expected that when the act came 
into operation, the bank would not issue at first more than £ 11,000,000 
against securities, and that the remaining £ 3,000,000 would not be issued 
until the rate of interest had advanced to three and a half or four per cent. 
But the act did not require the Bank of England to adopt this course ; and 
its adoption would probably have been considered by some parties as a 
departure from its principle. For it is a fundamental principle of the act, 
that the amount of the circulation shall jerk up and down in exact con- 
formity to the importations or exportations of gold. And hence during 
a favorable course of exchange, money must be abundant, and interest 
must be low. 

It is alleged that the act still further reduced the rate of interest, and 
promoted speculative undertakings, by placing the Bank of England in a 
position in which the directors were led to adopt a new system of man- 
agement. 

In September, 1844, soon after the act was passed, the directors, whose 
rate of interest had never previously been lower than four per cent., re- 
duced it to two and a half per cent. The object of this reduction was to 
invest a larger portion of their funds in the discount of bills. It stated 
that, to effect this object, the directors not only reduced their rate of dis- 
count, but also canvassed for business, and thus gave a stimulus to new 
transactions. They had been told that the banking department of the 
Bank of England was to be managed " like any other banking concern 
using Bank of England notes." And it is not an unusual thing for bank- 
ers, when they cannot employ their funds at so high a rate of interest as 
they wish to obtain, to employ them at a lower rate. Nor is it unusual 
for a banker to offer his surplus cash to bill-brokers and others, who are 
known to be in the habit of supplying bankers with bills. But however 
consistent the conduct of the directers may have been with banking prin- 
ciples, the reduction of the bank rate of discount immediately caused a 
reduction in the market rate, and in the rates charged by bankers through- 
out the country. For it must be observed, that when the bank lowers her 
rate of interest upon money in seasons of abundance, it has the necessary 
effect of reducing the market rate of interest still lower than the bank 
rate. Suppose, for instance, the bank discounts at five per cent., and the 
market rate of discount is four per cent., of course no bills are offered for 
discount to the bank. Then the bank, to get discounts, lowers her rate of 
interest to four per cent. A portion of bills that were previously dis- 
counted by private bankers and bill-brokers will then be taken to the 
bank ; but the notes thus drawn from the bank make money still more 
plentiful, and the market rate falls to three and a half or three per cent. 
Now, should the bank reduce her rate to three per cent, the same 3ffects 

68 



The Bank Act of 1844. 

would again follow. For the additional notes thus drawn out would make 
money so abundant as to reduce the market rate of interest to two and a 
half or two per cent., and so on. 

But in seasons of scarcity, precisely the opposite effect follows. For when 
the bank raises the rate of discount, it has the effect of raising the market 
rate still higher. Thus, if the bank should be discounting at 5 per cent., 
and the market rate should be 5^ per cent., let the bank raise her rate to 
6 per cent., and the market rate will immediately become 7 or perhaps 8 
per cent., or even higher upon inferior bills. For the bank rate of discount 
will be the market rate for only the first class of bills, — such bills as 
could be discounted at the bank ; and all bills of the second class will 
have to pay an advanced rate, and those of a still more inferior character 
will not be discountable at all. 

In 1844 the rate of discount was lower than in any previous season of 
abundance of money. This low rate of interest was produced, in the first 
place, by the principle of the act of 1844, which caused the issue of a 
large amount of notes against gold and silver bullion ; and, secondly, by 
that provision of the act which separated the two departments, and thus 
brought the banking department of the Bank of England into competition 
with other bankers and money dealers, as discounters of bills. (Com- 
mons, 2275, 5189, 5347-5350.) The directors of the bank seem to 
think that the spirit of the act of 1844 required that the bank should em- 
ploy its reserve. 

" If we keep the notes in the reserve, instead of giving them out to the public, the 
effect that ought to be produced by gold coming into the country is counteracted ; it 
induces a larger amount of capital to come into the country, because you do not allow 
that portion which has come in to be employed. If you do not put out the gold, or 
the representative of gold, you entirely prevent its having any effect upon the circula- 
tion. The exchange will be kept up, and gold will continue to come in." (Com- 
mons, 3009 .J 

Thus it appears that, although there is no positive enactment in the act 
respecting the management of the banking department, the directors so 
understand its spirit as to believe that when gold is going out of the coun- 
try they ought to take measures to prevent its exit ; and when gold is 
coming into the country, they ought to endeavour to drive it back again. 
The first object is attained by raising the rate of interest very high ; the 
second, by reducing it very low. It must, however, be acknowledged, 
that, apart from any efforts of the banking department, a large impor- 
tation of gold will under the act necessarily cause a low rate of interest. 

Secondly. The next charge against the act of 1844 is, that it does not 
admit of those occasional expansions of the amount of notes in circulation 
which are often required by the domestic transactions of the country. 

It is alleged that one imperfection of the act was strikingly manifested 
in the beginning of the year 1846. The Parliament required that all rail- 
way companies that intended to apply for an act should lodge ten per cent, 
on their capital within fifteen days after the meeting of Parliament. It 
was impossible to say beforehand what amount of notes would be required 
to make these payments. It was variously estimated at from £ 12,000,000 
to £ 25,000,000, while all the notes in the hands of the public amounted to 

69 



A Treatise on Banking. 

only about £ 20,000,000. Ultimately the railway companies of Ireland and 
Scotland were allowed to make their payments in Dublin and Edinburgh, 
respectively ; and the payments in London did not amount to more than 
£ 14,000,000. (Lords, 1209, 1214.) This large sum was paid by 
means of the banking department of the Bank of England lending out the 
money as fast as it was received. Had the act of 1844 not been in exist- 
ence, the Bank of England (as in the case of the West India loan, and of 
previous loans) might have lent out the money before the time of payment 
arrived, and no apprehensions would have been entertained. The notes 
in circulation would have been largely increased for a few days, and then 
again have subsided to the former amount. As it was, the payment was 
not made through any virtue in the act. And had it been required under 
different circumstances, or when the banking department had a smaller 
reserve, it could not have been made at all. (Lords, 1209.) 

It is further alleged, that the act of 1844 requires an immediate con- 
traction in the amount of the notes whenever gold is exported for merely 
a temporary or specific purpose. Between March 13 and April 24, 1847, 
£ 2,237,200 was exported in payments for corn. An equal amount of 
notes was of course cancelled by the issue department. These notes 
must have been taken out of the hands of the public, or from the banking 
department of the Bank of England. About the same time, the govern- 
ment had occasion to borrow of the banking department about £ 3,500,000 
to pay the April dividends. The banking department, consequently, for 
a while limited their discounts, and even refused to grant loans on ex- 
chequer bills. Great pressure was consequently felt, though it did not 
last for a long time. Now it is alleged, that if the act of 1844 had not 
existed, the directors would have allowed the gold to be exported without 
immediately contracting the notes in circulation. They would have lent 
the money required by the government, without refusing the loans and 
discounts to the public ; and the contraction of the circulation, by being 
extended over one or two months, instead of a few weeks, might have 
produced no inconvenience. 

By the act of 1844, the circulation of the country banks was restricted 
to a certain amount. The average of the twelve weeks ending the 27th 
of April, 1844, was fixed for the maximum. During some months in the 
year the country requires more notes than this maximum ; and, as the 
banks can issue no more notes of their own, they obtain Bank of England 
notes from London. In the year 1845 acts of Parliament were passed for 
the regulation of the notes issued in Scotland and Ireland. Beyond cer- 
tain fixed amounts the banks in these countries are required to hold gold 
equal to the amount of notes in circulation. In both countries this circu- 
lation fluctuates. In Scotland, the highest amount is in November. In 
Ireland, the highest amount is in January or February. In these months 
they require more gold, and this gold they obtain from the issue depart- 
ment in exchange for Bank of England notes. Before the act of 1844, 
the circulation of the country parts of England, of Scotland, and of Ire- 
land, expanded or contracted as required by the wants of the public, 
without affecting the London circulation of the Bank of England ; but 
under this act the expansion of the circulation of the country banks, the 

70 



The Bank Act of 1844. 

banks of Scotland and of Ireland, are attended by a contraction of the cir- 
culation of Bank of England notes in London. This may not be a matter 
of much consequence in ordinary times, when the banking department of 
the Bank of England has a large reserve ; but in seasons of pressure, such 
as occurred in 1847, this drain on the London circulation may be more 
severely felt. 

It may be further stated, that the withdrawal or discontinuance of a 
certain amount of bills of exchange, through loss of credit or otherwise, 
would render a larger amount of bank-notes necessary to fill up the space 
formerly occupied by those bills of exchange. But for such a circum- 
stance no provision is made by the act. (Lords, 232-235.) 

Thirdly. It is alleged that the act of 1844 tends to produce and to ag- 
gravate pressure, and at the same time deprives the Bank of England of 
the power of granting adequate assistance, even when the pressure is most 
urgent, and when assistance can be rendered without any danger of af- 
fecting the foreign exchanges. 

This objection assumes that a pressure is an evil. It assumes, that, to 
advance the rate of interest to a rate which no profit can afford to pay ; to 
deprive solvent houses of the means of meeting their legitimate engage- 
ments ; to cause a universal reduction of prices, and thus to baffle the cal- 
culations of even the most prudent ; to reduce wealthy merchants to the 
condition of paupers ; to deprive manufacturers of the means of executing 
their orders, and thus to throw thousands of industrious people out of em- 
ployment ; to sell to foreigners large amounts of goods and manufactures 
at less than the prime cost, thus causing a great national loss ; to paralyze 
the national industry ; to stop the progress of useful works, and to destroy 
confidence and credit, — the objection assumes, that a pressure which pro- 
duces effects like these is a national evil. And such must be the opinion 
of those who suspended the act, and of those who approve of that suspen- 
sion ; for it was to prevent or to remove evils like these that the act was 
suspended. 

It is alleged that the act tends to produce such pressures. By issuing 
notes against all the importations of gold, it causes abundance of money, 
lowers the rate of interest, and stimulates to speculative undertaking (thus 
the low rate of interest in 1844 and 1845 stimulated the railway specu- 
lations), and then, speculation is always succeeded by pressure. If, 
therefore, similar causes produce similar effects, and if the future shall 
resemble the past, the operation of the act of 1844 will tend to produce 
pressure. 

It is further alleged, that when a pressure occurs without being pro- 
duced by the act, then the act tends to aggravate the pressure. An un- 
favorable course of the exchange may be produced by a large importation 
of corn. The act requires that the exchange shall be rectified by an ex- 
portation of gold, and that this exportation of gold shall be attended by a 
contraction of the domestic circulation (according to the present meaning 
of the word circulation) to an equal amount. It is hardly necessary to 
show that these regulations must aggravate a pressure. 

It has been said, that the pressure of 1847 was produced by the railway 
speculations and the famine, and therefore it was not produced or in- 
F 71 



A Treatise on Banking. 

creased by the act of 1844. We do not perceive the soundness of this 
reasoning, and it seems to show a forgetfulness of the peculiar operation 
of the act. The act requires that the amount of notes in circulation shall 
fluctuate in exact accordance with the amount of bullion. Railway spec- 
ulations, famine, foreign loans, or a hundred other things, may turn the 
foreign exchanges, and cause gold to be exported, but it is the act which 
causes our circulation of notes to be contracted in proportion as the gold 
is withdrawn. So a hundred different circumstances may cause gold to 
be imported, but it is the act which causes the circulation to be inflated in 
correspondence with this increased amount of gold. Herein, we think, is 
the injurious operation of the act. When the exchanges are favorable, 
gold is imported. The gold is in bars and foreign coin, and could not 
pass as money. But the act issues notes against this gold, thus increasing 
the circulation, lowering the rate of interest, and giving rise to speculations 
of all kinds. These speculations, cooperating possibly with other causes, 
turn the exchanges. Notes are then taken to the bank, and gold demand- 
ed, for the purpose of being exported. This contraction of the circulation 
of notes produces pressure, and the apprehension of further pressure pro- 
duces panic. 

They who contend that the act of 1 844 has not " in the slightest degree 
tended either to create or to increase the pressure " (Lords, 3106) of 
1847, seem to be inconsistent in contending, at the same time, that the 
act has preserved the convertibility of the bank-note. It was the pressure 
and the high rate of interest, and low prices consequent upon the pressure, 
that checked the efflux of gold, and turned the exchanges. Now, if the 
act had no effect in producing or increasing that pressure, the converti- 
bility of the note, by whatever causes it was secured, was not secured by 
the act. If the act did not in the slightest degree either create or increase 
the pressure, in what way, we ask, could it preserve the convertibility of 
the note ? It appears to us that those who contend that the act preserved 
the convertibility of the note are bound by consistency to admit that the act 
produced or increased the pressure. 

It is further alleged, that the act aggravates a pressure by the " panic " 
which it creates. It is stated that, during the pressure of 1847, notes to 
the amount of £ 4,000,000 were hoarded under the influence of panic, 
and this hoarding was occasioned by the provisions of the act. It must be 
acknowledged, however, that something of this kind has taken place in 
former pressures. We noticed this circumstance with reference to the 
pressure of 1836 ( The History of Banking in America, by J. W. Gil- 
Dart, page 96), and again with reference to the pressure of 1839 (An 
Inquiry into the Causes of the Pressure on the Money Market in the Year 
1839, by J. W. Gilbart, page 38). 

" A contraction of the circulation leads to a general apprehension of 
danger. Hence the bankers and others keep larger reserves of bank-notes 
on hand, in order to be prepared for the worst, and thus the evils of the 
contraction are considerably increased. 4 That portion of the notes of the 
Bank of England which is passing from hand to hand, may be called the 
active circulation. That portion which is hoarded, or kept in reserve to 
meet possible demands, may be called the dead circulation. Now, it is 

72 



The Bank Act of 1844. 

quite certain that the dead circulation, while it remains in that state, has 
no effect upon the prices of commodities, the spirit of speculation, or 
the foreign exchanges. These are affected only by the active circulation. 
In seasons of pressure the dead circulation is increased at the expense of 
the active circulation, because people hoard their money to meet contin- 
gencies. Hence we find the pressure is often more severe than the re- 
duction of the bank circulation would seem to warrant. But the fact is, 
that the pressure is in proportion to the reduction of the active circulation, 
and not in proportion to the reduction of the whole circulation. On the 
other hand, in seasons of abundance, the dead circulation is diminished, 
the active circulation proportionably increased, and hence the stimulus 
given to trade and speculation is much greater than the returns of the 
Bank of England would warrant us to expect. 1 " (History of Banking 
in America, p. 96.) 

If this disposition to hoard — or, more properly, to make provision for 
future or contingent demands — existed in 1837 and 1839, when the 
Bank of England had the unrestricted power of issuing notes, when there 
was the most unbounded confidence in her ability to render assistance, — 
and when every solvent person expected, if necessary, to receive that as- 
sistance, — it is natural to suppose that this disposition would be stronger 
in 1847, when the Bank of England had become divided into two depart- 
ments, — one of which could issue no notes except against gold, and the 
other had barely notes enough to meet its own obligations. For this al- 
teration in the condition of the Bank of England, and the consequent feel- 
ings it inspired, the act of 1844 is clearly responsible. 

It is said that this desire of " hoarding " arose from panic ; and that 
the sum thus " hoarded " amounted to £ 4,000,000 of notes. It is diffi- 
cult to state where prudence ends and panic begins. This hoarding was 
no doubt carried on by all the joint-stock and private bankers, who, having 
received from the public large sums of money payable on demand, deemed 
it prudent to put themselves in a condition to repay these sums in case 
they should be demanded. And, from the number of banking establish- 
ments that exist in London, and throughout the country, it is reasonable 
to suppose that the sums thus hoarded must have been considerable. 
(Evidence before the Commons' 1 Committee, 70, 1737, 4605, 5776.) Many 
private parties, too, from distrust of their bankers, probably kept their 
hoards in their own hands. No blame, however, can attach to the bank- 
ers ; for although this " hoarding " increases the pressure, yet, were they 
not to adopt this course, their banks might stop payment, and thus a 
heavier calamity would fall upon the public. 

It is further alleged that the act of 1844 has deprived the Bank of Eng- 
land of the power of granting assistance by the issue of notes during a 
pressure, even when the pressure is most urgent, and the foreign ex- 
changes are favorable. Before the passing of the act, when there was no 
separation of departments, the bank directors restricted their issues when 
the exchanges were unfavorable, but extended them when the exchanges 
were favorable. Hence, during the pressure of 1837, they granted as- 
sistance by a further issue of notes to the Northern and Central Bank, 
because the exchanges had become favorable. Between the periods of 

73 



A Treatise on Banking. 

an efflux and an influx of gold there is always an interval of time. This 
interval is usually the highest point of the pressure ; and heretofore the 
Bank of England would relieve the pressure by extending her issue of 
notes, in anticipation of the gold about to arrive. By this means solvent 
houses were prevented stopping. Confidence was restored, " hoarding " 
was diminished, and the pressure removed. But the act of 1844 does not 
allow this. No additional notes can be issued until the gold has returned. 
The same course must be followed whether the exchanges are favorable 
or unfavorable ; and to anticipate the return of the gold, by a further issue 
of notes, under any circumstances, however urgent, would be a departure 
from the principle of the act. That such a departure, however, may be 
made with immense advantage to the public, is obvious from the effects 
which immediately followed the suspension of the act in October, 1847. 
{Commons, 5387-5389.) 

It is chiefly in this respect that the system established by the act differs 
from the system previously in operation. And some of the witnesses, 
looking no farther than this, merely recommended that a power to suspend 
the act in cases of severe pressure, should be lodged either with the 
government or the bank. We feel no regret that the Legislature did not 
comply with this recommendation. It is this inflexibility of the act which 
makes the commercial classes feel the unsoundness of its whole principle. 
Had a dispensing power been granted, we should merely have fallen back 
upon the previous system, w 7 ith the additional disadvantage that the bank 
would never be able to adopt a better system, even if so disposed. The 
directors had for several years professed to govern the issue of notes by 
the foreign exchanges, but departed from that principle according to their 
discretion. The act of 1844, by its inflexible enactments, put this princi- 
ple to the test of experiment. The principle could not bear that test, and 
hence the act was suspended. There is now a chance, at least, that we 
shall get a better system. The following is the language we addressed to 
the joint-stock banks at the time the act was passed : — 

" It must be acknowledged that the principle of regulating the currency 
by the stock of bullion in the Bank of England, as proposed by Sir Rob- 
ert Peel, is one which the joint-stock banks, as well as the private banks, 
have strongly condemned. But since we cannot obtain the adoption of 
our own views, the question for our consideration is, Whether the existing 
system or that now proposed will best promote the interests of our estab- 
lishments ? And we shall probably determine that it is better to have a 
uniform law, the operations of which may be subjected to some degree of 
calculation, than unknown laws, which are applied or suspended accord- 
ing to the impulse of caprice. 

" The proposed measure is an experiment ; and so excellent is the 
machinery, that the experiment interferes as little as possible with exist- 
ing interests. And the old machinery being retained by the continuance 
of the country issues, the return is easy to the former system, if neces- 
sary, before any serious injury can be inflicted on the country. 

" As practical bankers, we contend that experience is the only test of 
the soundness of a theory. Let, then, l the currency principle ' be tried 
by this test. If it succeed, the joint-stock bankers, in common with every 

74 



The Bank Act of 1844. 

other class of the community, will share the advantage. If it fail, then 
other principles will, perhaps, be tried ; and, notwithstanding all the de- 
nunciations we have heard upon the subject, it may perhaps be ultimately 
found that the principle of ' competing issues,' as practised in Scotland, 
is the only effective principle by which the currency throughout the United 
Kingdom can be managed." 

In the year 1844, I addressed four letters to the joint-stock banks, un- 
der the signature of Nehemiah. " The first was written a short time pre- 
vious to the opening of Parliament, the second soon afterwards, when an 
impression prevailed that a plan would be proposed for the establishment 
of one bank of issue ; the third, immediately after Sir Robert Peel had 
announced his measures in the House of Commons, and before the depu- 
ties from the joint-stock banks had held their meetiug for the purpose of 
considering them ; and the fourth, after those measures had become law.'" 
The object of the third letter, from which the above quotation is taken, 
was to advise the joint-stock banks not to discuss the principle of the cur- 
rency in their communications with the government, but to endeavour to 
obtain some practical modifications of the measures originally proposed. 
My advice was followed, and the modifications were obtained. The joint- 
stock banks have had no meeting respecting the pressure of 1847. They 
have consequently expressed no opinion respecting it ; nor did they pro- 
pose any witnesses for examination before the parliamentary committees. 
It was not thought advisable that the joint-stock banks, as a body, should 
interfere with public questions, except such as have a special reference to 
themselves, as joint-stock banks. It was therefore determined to watch 
the proceedings of the committees, but not to call a meeting of " the dep- 
uties," unless some measures were recommended that might practically 
affect the joint-stock banks. 

It is obvious that " the currency principle " has been tried and has 
failed. It seems now to be the proper time to try the antagonist principle, 
that the amount of the domestic currency should be wholly unaffected by 
the importations or exportations of bullion. We doubt not that the talent 
and ingenuity which framed the act of 1844 can construct a plan for 
bringing this principle also to the test of experiment. When this is done, 
we will judge of the soundness of the principle by its results. So far as 
it has hitherto been tried, it has never failed.* 

* It would appear from the recent Message of the President of the United States 
of America, that his principle has been tested by the operation of the " Constitutional 
Treasury." 

" During the present year, nearly the whole continent of Europe has been convulsed 
by civil war and revolutions, attended by numerous bankruptcies, by an unprecedented 
fall in their public securities, and an almost universal paralysis of commerce and in- 
dustry ; and yet, although our trade and the prices of our products must have been 
somewhat unfavorably affected by these causes, we have escaped a revulsion, our 
money market is comparatively easy, and public and private credit have advanced and 
improved. 

" It is confidently believed that we have been saved from their effect by the salutary 
operation of the Constitutional Treasury. It is certain that, if the 24,000,000 of specie 
imported into this country during the fiscal year ending on the 30th of June, 1847, had 
gone into the banks, as to a great extent it must have done, it would, in the absence 
of this system, have been made the basis of augmented bank paper issues, probably to 

75 



A Treatise on Banking. 

We have thus endeavoured to trace (impartially, as we believe) the 
practical operation o the Act of 1844. (The reader will find some fur- 
ther observations on this act in the section on " The Administration of 
the Banking Department of the Bank of England") It is reasonable to 
suppose, that under similar circumstances it will produce similar effects. 
What will be its effects under other circumstances, we have yet to learn. 
We have yet to learn what will be the operation of the act under a large 
importation of gold, ab initio, from a favorable state of the exchanges ; 
what will be the effect of the act during a pressure, when it shall not be 
suspended ; and how its effects may be increased or mitigated by any dif- 
ferent system of management on the part of the banking department. 
We have yet to learn how the act will work financially during a large 
falling off in the public revenue, an increase of taxation, or contracts for 
large government loans ; and how it will work during a war, in which we 
may have to maintain armies on the continent, or to subsidize foreign 
powers. We have yet to learn whether the issuing department will be 
ultimately removed from the Bank of England to the Exchequer, and we 
shall have a paper currency issued by the government under the authority 
of an act, the provisions of which may be suspended (as heretofore) by 
the same government ; and also whether the future suspensions of the 
act will ever be influenced by party or political considerations. And 
finally, we have yet to learn how the act will work in case of any large 
importations of gold from the mines of Russia or California. 

We may be reminded that, should the act work unfavorably under any 
of the above circumstances, there is one remedy always at hand, the 
remedy which has already been applied, to suspend it. And no doubt, 
under any government, men will be found who will have the courage to 
apply this remedy. But this will not remove the previous evil. The sus- 
pension, too, may be long delayed, and in the mean time much evil may 
arise. In the next pressure the nation will be like " a cat in an air- 
pump." The animal will not be allowed to die, but at what precise 
period of exhaustion relief will be afforded will depend upon the views and 
theories of the philosophic statesman who may at the time be performing 
the experiment. 

It will not be safe for practical bankers to calculate with too much con- 
fidence upon the suspension of the act. They should make their arrange- 
ments on the supposition that it will not be suspended. And it behoves 
them to inquire what are the principles upon which, under such circum- 
stances, their establishments ought to be administered. This we shall now 
proceed to do. 

an amount not less than 60,000,000 or 70,000,000 of dollars, producing, as an inevita- 
ble cousequence of an inflated currency, extravagant prices for a time, and wild spec- 
ulation, which must have been followed, on the reflux to Europe the succeeding year 
of so much of that specie, by the prostration of the business of the country, the suspen- 
sion of the banks, and most extensive bankruptcies. The restraining effect of the sys- 
tem upon the tendencies to excessive paper issues by banks, has saved the government 
from heavy losses, and thousands of our business men from bankruptcy and ruin. 
The wisdom of the system has been tested by the experience of the last two years, and 
it is the dictate of sound policy that it should remain undisturbed." 

76 



The Bank Act of 1844. 

We pointed out at the passing of the act the course which we thought 
prudent bankers ought to pursue. 

" Permit me now, with all deference, to point out the course which I 
think the joint-stock banks should pursue. In future, the amount of notes 
in circulation will be regulated by the foreign exchanges. When the ex- 
changes are favorable, money will be abundant ; when they are unfavor- 
able, it will be scarce. The evils arising from a scarcity of money can 
only be avoided by following a prudent line of conduct when money is 
abundant. We, then, as prudent bankers, ought at present to check our 
desires of making large profits and declaring high dividends, and be con- 
tent to employ our funds at a low rate of interest, rather than lock them 
up in hazardous or inconvertible securities. We should call up our old 
over-drafts, and our dead loans, and, if necessary, increase our capital, so 
as to place ourselves in the position most favorable for meeting an adverse 
state of the foreign exchanges. In cases of pressure on the money mar- 
ket, arising from an unfavorable course of exchange, the Bank of Eng- 
land will not be able, as heretofore, to relieve that pressure by a further 
issue of notes, and, so far from granting assistance to other banks, she 
may, from the extent of her transactions, be more in need of assistance 
herself. We must, therefore, conduct our banks, individually, on a prin- 
ciple of self-dependence ; we shall have to limit our overdrawn accounts, 
to avoid all advances on inconvertible securities, and to call up such an 
amount of capital as shall secure to us the means at all times of giving 
reasonable accommodation to our customers. On the recurrence of a 
pressure similar to that of 1839, the cry will be sauve qui peut, — i every 
one must take care of himself.' " (Letters of Nehemiah.) 

The knowledge we have acquired of the working of the act will tend to 
give additional force to these recommendations. The attention of prac- 
tical bankers will also be called to other points besides those which are 
here named. 

It will become a question with them to what extent they should continue 
to allow interest on their deposits. Some of the joint-stock banks in Lon- 
don allow interest on the minimum balance of a current account. Others 
allow interest only on deposit receipts. But most London bankers, whether 
private or joint-stock, allow interest on the daily balance to their country 
connections. In seasons of abundance, however, they usually limit the 
amount on which they allow interest, to prevent themselves being glutted 
with money from the country banks. But should the act of 1844 produce 
those frequent alternations from abundance to pressure, and again from 
pressure to abundance, which we think it will produce, then it will become 
a matter of consideration how far the practice of allowing interest on de- 
posits can be continued. It can never be worth a banker's while to allow 
interest on money which remains in his hands only so long as it cannot 
be employed, and is taken from him the moment it becomes valuable. 
During the year 1847 vast sums were withdrawn from both the London 
and the country bankers, not from any distrust of these bankers, but with 
a view to make more profitable investments. The rate of interest had 
been for some time previously very low. Consols had been at par ; and 
when consols fell so low as to yield 3^ per cent, interest, and the railway 

77 



A Treatise on Banking. 

companies issued debentures bearing interest at five per cent., large sums 
were withdrawn from all the banks, as well as from the savings banks, for 
the purpose of being invested in these securities. The bankers had no 
right to complain of this, as they were called upon only to fulfil their en- 
gagements ; but they will probably be unwilling in future to allow interest 
on deposits of this description. 

Another circumstance which the operations of the act of 1844 will lead 
practical bankers to reconsider, will be the extent to which they should 
invest their surplus funds in government securities. Many bankers have 
considered it as a sound principle to invest a certain portion of their funds 
in government securities. We have laid before our readers extracts from 
evidence given before parliamentary committees in favor of this principle, 
and we expressed our own convictions respecting the same doctrine. But 
we must acknowledge the operations of the act are sufficient to show that 
this principle should be acted upon with caution, and should be limited in 
its application. The act will cause money to be alternately abundant and 
scarce. When money is abundant, the funds are high ; and when money 
is scarce, the funds are low. In seasons of abundance the banker will be 
full of deposits ; in seasons of pressure his deposits will be withdrawn, and 
he will, moreover, be asked to assist his customers by further advances. 
He will, therefore, always have occasion to sell out of the funds when the 
price is low, and thus he will sustain loss. It will, consequently, be his 
interest to employ his surplus funds in other investments, or even to keep 
his money unemployed in his till, rather than invest it in government se- 
curities. His risk will be greater if the act should be capriciously sus- 
pended. In October, 1847, several banks are said to have sold out of the 
funds only a few days before the appearance of the government letter. 
After the issue of that letter the money was not wanted ; but, as the funds 
immediately rose, the money could not be replaced but at considerable 
loss. The reports and proceedings of the joint-stock banks brought to 
light some transactions of this kind, and it is probable that the private 
banks sustained heavy losses by similar transactions. 

Another lesson that will be more deeply impressed upon the minds of 
practical bankers, will be to conduct their establishments in such a way as 
to be self-dependent in seasons of pressure. 

The events of the year 1847 are sufficient to show to what extent de- 
pendence can be placed on the Bank of England. Several of the direc- 
tors complained that every body looked for assistance to the Bank of 
England. No expectation could be more complimentary to the bank, nor 
show more strongly the confidence she had inspired under her previous 
government. In no preceding pressure had she refused assistance upon 
the ground that she was unable to grant it. But in former pressures there 
was no separation between the issuing and the banking departments. Her 
great strength lay in the power she possessed of expanding the circulation. 
That power she surrendered to the act of 1844. She then became like 
" any other banking concern issuing Bank of England notes." Her locks 
are now shorn. (Commons, 769, 3223-4, 3941-2, 4566, 5389.) 

The Bank of Liverpool had been one of the oldest and most respectable 
of the connections of the Bank of England. They had, from their com- 

78 



The Bank Act of 1844. 

mencement, never issued any but Bank of England notes, and had always 
a pretty large discount account with the branch at Liverpool. Yet, in the 
year 1847, their minute book contains several entries similar to the follow- 
ing: — "The manager stated he had seen the agent of the branch bank 
this morning, and that he would not discount any thing for us to-day." 
Even in the comparative light pressure of April, 1847, the bank suddenly 
restricted their discounts ; and in October, 1847, they were quite unable to 
meet the public demand, although in some cases they lent consols instead 
of money. Indeed, it was because the means of the bank were unable to 
supply the demand for notes that the act of 1844 was suspended ; yet the 
governor, and all the other witnesses who supported the act of 1844, 
stated their opinion that the pressure of 1847 was not so severe as some 
preceding pressures. How much sooner, then, would the means of the 
bank have been exhausted if the pressure had equalled its predecessors in 
severity ! 

While bankers should not depend on the Bank of England, neither 
should they depend on the bill-brokers. A broker, as the name implies, 
is an intermediate party between the borrower and the lender. When 
money is abundant, the bill-broker has large funds at his disposal, with 
which he will discount at a lower rate of interest than the bankers. When 
a pressure arrives, these funds are withdrawn, and his occupation is gone. 
Some bill-brokers have large capitals of their own, and take in deposits, 
repayable on demand ; and to this extent they may be regarded as bankers. 
When money is abundant, sometimes cunning people, instead of going to 
their own banker's, will take their bills to the bill-brokers, who will dis- 
count them at a lower rate ; and when the pressure arrives, and the bro- 
kers no longer discount, they think to return to their banker's. It is said 
that some country banks have occasionally adopted the same system. 
But it is clearly a bad system for any bank to adopt. A bank that is 
dependent on re-discount, will most likely feel some inconvenience in a 
season of pressure, even when the bills are all undoubtedly good. But 
if the bank has, from a desire of making large profits, been induced in 
seasons of abundance to re-discount inferior bills, the results may be more 
serious. For in a season of pressure, a large portion of those bills will 
not be paid, and the bank will have to provide payments for its own in- 
dorsements, while its former channels of re-discount will be closed. All 
the joint-stock banks that stopped payment in 1847, had been accustomed 
to re-discount ; and though some of them were unsound in other respects, 
yet the immediate cause of their stoppage was the inability to re-discount. 
We again refer to the proceedings of the Bank of Liverpool. M The 
manager stated that out of two small sums of £ 10,000 sent to London to 
the broker's, only one had been done." " We had then £ 100,000 at call 
with certain bill-brokers, who were unable when applied to, to return us 
more than .£25,000." The governor of the bank stated that the failure 
of the corn speculators caused the failure of an eminent discount-broker 
having a large country connection ; and this failure, by closing one of the 
principal channels of discount between the country and London, caused 
distrust to extend into the country. 

Banks should not only avoid depending on the Bank of England, or on 

79 



A Treatise on Banking. 

bill-brokers ; they should also avoid depending on other banks. Some 
banks in manufacturing districts are in the habit of discounting with banks 
in agricultural districts, — a very good practice, as we think. But the 
banks requiring the discount should always recollect that when a pressure 
arrives, the discounting bank may have other ways of employing its funds. 
Country banks, too, should not rely too much on their London agents. 
Some London bankers have, no doubt, immense power. At the same 
time, in seasons of pressure, they have immense claims upon them. 
(Commons, 2344-8.) If free from a run upon themselves, they will 
endeavour so to administer their funds as to afford reasonable assistance to 
all their connections. And no one connection should expect to receive 
more than this reasonable amount of assistance. But they may them- 
selves be exposed to danger. The panic of 1847 was not a banking 
panic, but a commercial panic ; and therefore the London bankers were 
comparatively free from molestation. But banks had failed in Liverpool 
and Newcastle, and this might have caused a banking panic in London. 
The panic of 1825 commenced by the failure of a country bank. In such 
a case the London bankers could have rendered but little assistance to 
their country connections. It must be recollected, that the act of 1844 
was suspended upon the application of the London bankers. The gover- 
nor of the bank stated to the Committee of the House of Lords, " The 
London bankers and discount-brokers refused to grant the usual accom- 
modation to their customers, and necessarily obliged every one requiring 
assistance to resort to the bank of England." 

The most effectual way of acquiring this self-dependence that we have 
been recommending, is to call up an adequate amount of capital. During 
a pressure, as we have already said, a banker has three additional claims 
on his funds. In the first place, a large amount of his deposits may be 
withdrawn. Secondly, many of his customers, and some probably of the 
wealthiest, will require addititional assistance, in the way of loans and 
discounts. And, thirdly, he will think it prudent to keep a larger sum in 
his till to meet contingent demands. On the other hand, the bills he holds 
will not all of them be regularly paid ; the temporary loans he has granted 
will have to be renewed ; and should he call up any of his permanent, or 
dead loans, it will resemble calling spirits from the deep. In this case he 
will find the benefit of a large capital ; and it is only by means of a large 
capital that all these operations can be performed with comfort to himself 
and satisfaction to his customers. But if we increase our capitals to the 
full extent that may be required in seasons of pressure, we must not ex- 
pect to pay high dividends. It is obvious that, with the same extent of 
business, a bank with a large capital must pay a lower dividend than a 
bank with a small capital. It seems therefore likely that the average rate 
of banking profits will be reduced. 

" The fluctuations in the value of money produced by attempting to 
regulate the currency by the foreign exchanges are injurious to both the 
London and the country bankers. In seasons when money is abundant, 
the bankers obtain but a low rate of interest on their loans and discounts ; 
and they are tempted to make imprudent investments in order to employ 
their funds. And when, on the other hand, money is scarce, the amount 

80 



The Bank Act of 1844. 

of their lodgments is reduced ; the rate of interest allowed on the perma- 
nent deposits is advanced ; a larger sum is kept unemployed in the till ; 
and there is more danger from losses, either by the failure of parties in 
debt to the bank, or by the necessity of realizing government securities. 
Those country bankers who are in the habit of re -discounting their bills in 
London are induced, when money is abundant, to carry this system to a 
great extent, because they can obtain money at two or three per cent, 
in London, and lend it in the country at four or five per cent. But when 
money becomes scarce they have to pay an exorbitant interest or are 
denied discounts altogether, and they are then compelled to refuse their 
customers their usual accommodation, and then great distress is occasioned 
in the provinces. Except under peculiar circumstances, both the extremes 
of abundance and scarcity of money are unfavorable to large banking 
profits, — a state in which money is easy without being abundant, and 
valuable without being scarce, is the most conducive to the prosperity of 
both the banking and the commercial interests of the country." (An In- 
quiry into the Causes of the Pressure on the Money Market during the 
year 1839.) 

While, however, the profits of a banker from the ordinary operations 
of his business may be diminished, it is possible he may have opportuni- 
ties of making other profits by those fluctuations in the prices of public 
securities, which usually occur in the different periods of a circle of the 
currency. In the first period, immediately after a pressure, money is 
abundant without speculation ; in the second period, money is abundant 
and speculations abound ; in the third period, speculation begins to decline 
and money is in demand ; in the fourth period, money is scarce and a 
pressure arrives. It is impossible to say how long each of these periods 
may last, as they will be influenced by political events, the abundance of 
the harvests, the direction which speculation may take, and the state of 
the public mind. Their approach or decline is generally indicated by the 
stock of gold in the Bank of England. 

During the first period money will be abundant, because the importation 
of gold will cause an increased issue of bank-notes ; because, the import 
of commodities being diminished, there will be fewer bills drawn from 
abroad upon English houses and offered for discount to the London bank- 
ers ; and because trade will have become paralyzed at home, and prices 
will have fallen, so that less money will be required to carry it on. A 
banker at this period, will have more money than he can employ. But 
at this period, the prices of the public funds and of other securities are 
low. The act of 1844, by causing great fluctuations in prices, gives 
great advantage to prudent capitalists, at the expense of the less prudent 
or less wealthy classes of the community. " All fluctuations in trade," 
says Mr. Gurney, "are advantageous to the knowing man." (Lords, 
1324.) To those who are not " knowing men," these fluctuations are 
injurious. The abundance of the circulation produces a multiplication of 
contracts, and then the contraction of the circulation produces an inability 
to fulfil them. (Lords, 3845.) And those who have stock or any other 
kind of salable property, are obliged to realize in order to fulfil their 
engagements. Bankers may, during this period, make advantageous in 

81 



A Treatise on Banking. 

vestments ; and as they may calculate that another pressure will not ar- 
rive for two or three years, they may purchase a limited amount of secu- 
rities that have six or twelve months to run. During the second period, 
money will be in demand, though there may be no great advance in the 
rate of interest. The securities purchased by the banker in the first pe- 
riod, will now be falling due or advancing in price. But this will be the 
period of his greatest danger, and he must have a care not to let his de- 
sire of getting higher interest lead him to make undue advances upon the 
commodities or securities that may be the subject of speculation. The 
third period will be the most profitable for the banker in his direct busi- 
ness. Money will be in full demand at a good rate of interest, and his 
deposits will hardly have begun to decline. He should now sell out stock 
and exchequer bills, or any other securities likely to be affected by the 
approaching pressure. He should make advances only by discounting 
short bills or making short loans. He should weed his accounts of such 
customers as have deeply engaged in the previous speculations ; and put 
himself in a condition to support liberally through the pressure those who 
may be entitled to his assistance. 

It seems therefore probable that bankers will, under the act of 1844, 
endeavour to make up for diminished profits by dealing more largely in 
securities. According to the evidence of Mr. Pease, the fluctuations in 
the currency have already produced similar effects in the departments 
of trade and commerce. 

" I stated, as clearly as I was able to do, that the man who bought from hand to 
mouth, which is the common case, and did not watch those fluctuations of capital, so 
as to buy when things were unusually depressed, and to sell when things rose again, 
failed. The only man who succeeded in making money, succeeded in carrying on a 
speculative kind of business, that has arisen from the want of regularity in the values 
of money and produce. The man who did not so speculate — buying largely at one 
time, and selling very freely at another — did not succeed." " It is of great import- 
ance that persons who do not desire to carry on a speculative business, should have 
some assurance that it is moderately productive. That assurance they have lost, by 
being suddenly deprived by those fluctuations of that which they thought they had se- 
cured by their industry." (Commons, 4700, 4702.) 

Though we would not confound this kind of speculation with that which 
takes place by means of time bargains on the Stock Exchange, yet we do 
not think it desirable that banks should deal in the public securities mere- 
ly with a view of making a profit from the fluctuations in price. Some- 
times the banker will be out in his calculations, and, instead of selling at 
a profit, he will have to sell at a loss, or else submit to a lock-up of his 
funds. And at all times there is a danger that he will acquire a specula- 
tive feeling, which will lead him to disregard the steady pursuit of his 
trade. 



Section IX. — THE ADMINISTRATION OF THE BANKING DE- 
PARTMENT OF THE BANK OF ENGLAND. 

By the act of 1844, the banking department of the Bank of England 
was separated from its issuing department ; and was to be managed like 

82 



The Bunk of England. 

" any other banking concern issuing Bank of England notes." Taking 
this view of the banking department, we propose to inquire on what 
principles it ought to be administered. We shall do this, however, not 
so much with the view of bringing forward any notions of our own, as to 
lay before the reader some account of those principles which the bank 
directors have adopted for their government. This will lead us, perad- 
venture, to discuss some principles of practical banking to which we have 
not hitherto had occasion to refer. We shall then trace the operations 
of this department since the passing of the act of 1844. 

The Bank of England is governed by a court of directors, consisting 
of twenty-four members. These are selected from the mercantile classes 
of London, virtually, by the other directors, who form what is called a 
House List. They recommend certain persons to be chosen as directors, 
and the proprietors always follow this recommendation. The court hold 
their meetings every Thursday, and they then receive a report of the 
transactions of the preceding week. 

The executive administration, in the mean time, is in the hands of the 
governor and deputy-governor, who may be advised or assisted by the 
committee of treasury. This committee is composed of those directors 
who have held the office of governor, of the existing governor and deputy- 
governor, and of the director who is intended to be the next deputy-gov- 
ernor. A director is at first an ordinary director, and attends the weekly 
meetings of the court. In turn he becomes, for one year, a member of 
the committee of treasury ; then deputy-governor for two years ; then 
governor for two years; and afterwards a permanent member of the 
committee of treasury. This committee meet once a week, and at such 
other times as they may be called together specially by the governor. 
Sometimes they discuss the measures that are to be submitted to the next 
meeting of the court ; but the court do not now so readily as formerly 
adopt their recommendations. The governor and deputy-governer, for 
the time being, make all loans and advances, and sometimes raise the 
rate of discount, without waiting for the opinion of the court. They 
conduct all negotiations with the government, and, subject to the sanc- 
tion of the court, have the whole administration of the affairs of the bank. 
Each director must hold =£2,000 bank stock; the deputy-governer, 
£ 3,000 ; and the governor, £ 4,000. It was the rule that every director 
should take his turn for becoming governor, but recently it has been 
determined to place in that office the director whom the other directors 
shall, by ballot, think best qualified. Several suggestions were made be- 
fore the parliamentary committees, for improving the composition of the 
court of directors. It was proposed that all the directors should not be 
taken from the commercial classes, but that some should be selected 
from the banking and manufacturing interests. It was also asked, wheth- 
er a permanent governor, either for life or for a number of years, would 
not be preferable to the present system. 

The act for separating the two departments came into operation on the 
31st August, 1844, and the following was the first return made under the 
act, showing the condition of the banking department on the 7th of Sep- 
tember, 1844 : — 

83 



A Treatise on Banking. 



Account of the Liabilities and Assets of the Bank of England, for the week ending 7th 
September, 1844.* 



Dr. 
Notes issued, 



ISSUE DEPARTMENT. 
£ 



28,351,295 



£28,351,295 



Government debt, 
Other securities, 
Gold coin and bullion, 
Silver bullion, . 



BANKING DEPARTMENT. 



Proprietors' capital, 
Rest, .... 

Public deposits, . 
Other deposits, 
Seven-day and other bills, 



£ 
. 14,553,000 

3,564,729 
. 3,630,809 

8,644,348 
. 1,030,354 

£31,423,240 



Government securities, 
Other securities, 
Notes, . 
Gold and silver coin, 



Or. 

£ 
. 11,015,100 

2,984,900 
. 12,657,208 

1,694,087 

£28,351,295 



£ 

14,554,834 

7,835,616 

8,175,025 

857,765 



£31,423,240 



It will be seen from the above, that the means or funds of tbe banking 
department for carrying on its business, consists of, — 1. The paid-up 
capital ; 2. The rest, or surplus fund ; 3. The public deposits ; 4. The 
other deposits ; 5. The seven-day and other bills. These funds are' in- 
vested in " government securities " and in " other securities," and the 
remainder is kept as a reserve in the till. 

1. Viewing this as the condition of a private and independent bank, the 
first thing that would strike the mind of a practical banker would be the 
large amount of the Paid-up Capital. The capital is £ 14,553,000 ; 
while the total deposits are only £ 12,275,157. The object of a large 
capital is, in the first place, to secure the public confidence ; then, to have 
the means of repaying the deposits whenever demanded ; and also, of 
affording to the customers of the bank every reasonable accommodation 
in the way of loans or discounts. But after making due provision for 
these objects, this amount of capital appears unnecessarily large. Were 
it only <£ 7,000,000, that would be amply sufficient for carrying on the 
present extent of business, and the rate of dividends might then be in- 
creased. All above this amount could only be invested in government 
securities, never likely to be required for banking purposes ; and if re- 
quired, could not be suddenly realized, or at least not within the period 
in which they are likely to be wanted. 

2. The next thing that would appear remarkable for a private bank, is 
the large amount of the Rest, or surplus fund. 

The Rest, or surplus fund, or Guarantee Fund, as it is sometimes 
called, consists of the accumulation of surplus or remaining profits after 
the payment of the dividend. The object of this fund is not to guarantee 
the public for the security of their deposits, but to guarantee to the share- 
holders the uniformity of the dividend. If, in any one year, the profits 
fall below the amount required to pay the usual dividend, the deficiency 

* The Table on the next page will give a more detailed account of some of the 
items in the above return. 

84 



The Bank of England. 

is taken from the rest or surplus fund. The amount of this fund should 
be regulated by the extent of the business and the probable loss that 
might arise in conducting that business. If the fund is five or six times 
the amount of the deficiency that might possibly arise in making up the 
annual dividend, it would appear to be sufficient. For if, after making 
up this deficiency for one, two, or three years, it should appear that the 



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85 



A Treatise on Banking. 

profits of the bank had become permanently diminished, then the course 
would be to reduce the dividend until the surplus fund had recovered its 
former amount. 

Banks that have made large profits have either increased the dividend, 
or distributed them among the shareholders in the form of bonuses, or 
have added them to the capital. The Bank of England have adopted all 
these plans. Yet, after all these distributions of increased dividends, bo- 
nuses, and additional capital, the bank had on the 7th of September, 1844, 
a rest, arising from surplus profits, of .£3,564,729. No other " banking 
concern carrying on business with Bank of England notes," would think 
it necessary to keep such a rest. Neither the kind nor the extent of busi- 
ness carried on, is ever likely to require any thing like this amount to 
meet any occasional losses. The amount is altogether excessively dispro- 
portionate to the purposes for which a surplus fund is usually applied, and 
at the same time it tends to give an erroneous view of the profits of the 
bank. This rest is employed in the business, and yields profits, but it 
pays no dividends. The profits go to swell the dividend on the capital, 
and hence the capital appears to yield a profit of 7 per cent. But the 
dividend of 7 per cent, is not made upon the capital alone, but on the 
capital and rest together, and hence upon the funds employed it amounts 
to only about 5} per cent. 

3. The Deposits. 

The Public Deposits are thus classified : — 

£ 

Exchequer account, 2,198,000 

For payment of Dividends, 315,000 

Savings Banks, &c, '. 501,000 

Other public accounts, 617,000 

£3,631,000 

The " Exchequer account" is the current account with the govern- 
ment, and this account is credited with the amount of the taxes as they 
are lodged in the bank. In the beginning of January, April, July, and 
October, this account is debited for the amount necessary to pay the 
quarterly dividends, and the amount is carried to the credit of the ac- 
count " for payment of dividends." The balance here standing to the 
credit of this account is the amount of the dividends that had not then 
been claimed. The next account is called " Savings Banks, &c." The 
trustees of the savings banks throughout the country are required to lodge 
the deposits in the Bank . of England to the credit of the Commissioners 
for the Reduction of the National Debt, who afterwards invest it in the 
public funds. We do not know what is meant by " &c.," nor yet by the 
" other public accounts." We believe there are certain accounts con- 
nected with the Court of Chancery that are required to be kept with the 
Bank of England ; and, by the last bankruptcy law, the effects of bank- 
rupts' estates are required to be lodged in some one or other of the 
branches. These may form the " other public accounts." 



The Bank of England. 
The Private Deposits are thus classified : — 

Railways, 30,000 

London Bankers, 963,000 

East India Company, ■ 636,000 

Bank of Ireland, Royal Bank of Scotland, &c., . 1 75,000 

Other Deposits, ' . . 5,631,000 

Deposits at Branches, 1,209,000 

8,644,000 

With regard to both the public and the private deposits, a banker would 
inquire whether they were fluctuating or permanent ; whether repayable 
at fixed periods, or liable to be suddenly withdrawn. He would thus as- 
certain what proportion could be profitably employed, and what amount 
should be kept in the till, to meet constant or occasional demands. He 
would observe on inspection that the balance of the " exchequer account " 
increases gradually during the quarter, from the receipt of the taxes, until 
the commencement of the next quarter, when it is largely reduced by the 
payment of dividends. He will, therefore, provide for these quarterly 
payments ; but his provision will be less ample when informed, that, as 
the public deposits decline, the private deposits will increase, and more 
especially those of the London bankers. This is partly in consequence 
of the bankers holding powers of attorney to receive the dividends due to 
parties who reside in the country, and partly because the abundance of 
money caused by the payment of dividends increases their own deposits, 
and thus enables them to keep for a time larger balances in the Bank 
of England. We have already said that no rule can be given as to the 
amount of notes which any banker should keep in his till, — the proper 
amount can be ascertained only by experience. But we should imagine 
that in ordinary times the deposits in the Bank of England are sufficiently 
steady to prevent any perplexity on the subject. We may be asked what 
we mean by " ordinary times," since now every year differs from its pre- 
decessor, and the steadiness and uniformity which heretofore characterized 
banking and commercial affairs are no longer known. We reply, that by 
" ordinary times," we mean those times that are the least affected by the 
foreign exchanges. For some years past it has been the practice to reg- 
ulate the issue of bank notes by the foreign exchanges. When the foreign 
exchanges bring gold into the country, bank notes are issued against it, 
money becomes abundant, and the bank deposits increase. When the 
exchanges take out gold, the bank notes are diminished, and the bank de- 
posits decline. This system has, in a great measure, been acted upon by 
the bank directors since the year 1832, and it is now rigidly enforced by 
the act of 1844. These extraordinary seasons of great influx or great 
efflux of gold appear to be subject at present to no general rules. But at 
other times there seems to be no reason why the Bank of England should 
not profitably employ a large portion of her deposits. We may observe,. 
however, that, as the bank allows no interest on any of her deposits, she 
sustains no loss even when they are not employed ; but were they to be 
employed, her profits would be greater. 

G 87 



A Treatise on Banking. 

4. With regard to the Investments, a banker would inquire first, Are 
they safe ? Secondly, Are they convertible ? 

There seems no ground to question their safety, — their convertibility 
is not so obvious. The Government stock, Exchequer bills, and East 
India bonds, must be considered in ordinary times, and to a reasonable 
amount, as strictly convertible. But this is not the case with the Govern- 
ment annuities. They could not be sold in the market ; and even by 
private negotiations, few buyers would be found, except the insurance 
offices. Even with them the negotiations would probably occupy consid- 
erable time. As to the city bonds, railway bonds, and mortgages, they 
would in a season of pressure be altogether useless. It may be said, that 
the bank's capital being so large, a portion may, without inconvenience, 
be locked up in dead securities. This observation is valid to a certain 
extent, but not to an indefinite extent, and, after giving it due weight, the 
amount thus invested seems too large. 

The annuities form a large portion of the amount of the " Stock and 
Annuities." The first is an annuity of <£ 585,740, usually called the 
" Dead Weight," which commenced on the 5th April, 1823, and is to 
continue for forty-four years from that time. Other annuities arose out 
of the Bank Charter Act of 1833. The government were to pay to the 
bank one fourth of the permanent debit of £ 14,686,800, amounting to 
.£3,671,700. At first it was arranged that the bank should receive in 
payment of this sum £ 4,000,000 three per cent, reduced annuities ; but 
it was afterwards changed to an annuity for twenty-six years, and will 
expire in 1860, at the same time as the " Long Annuity." 

The bills discounted, and the short loans called " Advances on bills of 
exchange, exchequer bills, stock, &c," are most legitimate banking in- 
vestments. 

The plan of granting short loans was commenced in 1829, to obviate that 
tightness in the money market which was felt for a month or six weeks 
before the payment of the dividends, through the gathering in of the 
taxes into the exchequer. The rate of interest charged was usually about 
one per cent, less than the discount charged on bills. The loans were 
repayable to the bank at about the time that the dividends were paid to 
the public. Notices were issued, stating the rate of interest, and the kind 
of securities on which loans would be made, and the time of repayment. 
The first notice was issued on the 3d of December, 1829, and the prac- 
tice continued until after the passing of the act of 1 844. 

Advances on deficiency bills are a kind of short loans made to the gov- 
ernment, whenever the taxes are less than sufficient to pay the public 
dividends. These advances seem to be very legitimate. The bank has 
one large customer. A customer who keeps large deposits will some- 
times require large advances. These advances may, peradventure, be 
wanted at a time when it may not be exactly convenient for the banker to 
make them. All large accounts may at times be attended with some in- 
convenience. But if a banker takes such accounts, he must make his ar- 
rangements accordingly. In the present case, the bank has the advan- 
tage of knowing, by the progress of the lodgments on the " Exchequer 
account," whether such advance is likely to be required. 

88 



The Bank of England. 

When the government requires these advances, the bank must either 
make them out of her reserve in the till, or sell public securities to obtain 
bank-notes, or restrict her advances to other parties. It is peculiarly un- 
fortunate that the government is more likely to require these advances in 
seasons of pressure, inasmuch as in those seasons the taxes are usually 
less productive and are less punctually paid. Hence the bank may be 
called upon to make advances to government at the same time that simi- 
lar advances are required by the commercial classes. In some cases the 
bank might not have the means of making advances to both parties. Had 
the government required such advances in October, 1847, the commercial 
distress must have been considerably increased. 

5. The Reserve. — A practical banker would, at first sight, consider 
this reserve as too large. From the amount and character of the depos- 
its it would not appear that so large a reserve was necessary, and a portion 
might well be employed in earning interest, instead of lying unproductive 
in the till. But, before we condemn the bank directors, we must give this 
matter further consideration. We have already stated, that, even before 
the passing of the act of 1844, the directors had been in the habit of issu- 
ing their notes against gold and silver bullion ; and when a large amount 
of notes had not been thus issued, the deposits in the bank were increased. 
Now, when this act came into operation, — August 31st, 1844, — the bank 
had in this way acquired a large amount of gold and silver bullion ; in- 
deed, she does not ever before appear to have had so large an amount in 
the whole course of her history. If we look to those years which preceded 
pressures (for in these years gold on hand is usually large), we shall find 
that in 1824 the amount was £ 13,810,080; in 1836 the highest quota- 
tion is .£7,801,000; and in 1838 it is £ 10,126,000; but on the 7th of 
September, 1844, the amount returned in the issue department is, gold 
£12,657,208, and silver £1,694,087, while the sum of £9,032,790 
was retained in the banking department. Notes, of course, had been 
issued against all this bullion, and the deposits in the bank had conse- 
quently increased. " Well," it may be said, " this will account for the 
increase of the deposits, bdt not for the increase of the reserve. Why 
were not the deposits invested ? " We will explain this. There are 
some classes of investments which the bank directors can make indepen- 
dently of other parties. For instance, they can purchase government 
stock, exchequer bills, and railway bonds, just as they please. But, as 
we have stated, it is not prudent in a banker to invest the temporary in- 
crease of his deposits in this way, as, when the deposits are withdrawn, 
he may have to sell these securities at a lower price, and thus sustain 
loss. There are other classes of investments for which the bank is, to a 
certain extent, dependent on other parties ; such, for example, as the dis- 
counting of bills and the granting of loans. The bank directors cannot 
invest their money in these ways unless there are parties willing to receive 
it. Now, while a portion of the notes issued against gold and silver bul- 
lion are lodged with the bank in the form of deposits, another portion, and 
sometimes the largest portion, do not go into the bank, but are circulated 
among the public, and soon find their way into the hands of bankers, bill- 
brokers, and money dealers, who, from the abundance of money, will 

89 



A Treatise on Banking. 

discount bills and grant short loans at a lower rate of interest than the 
bank. The bank will, therefore, have no further applications. When 
her bills and loans fall due, they will be paid, and the amount will go to 
increase her reserve. Thus it appears that the notes which, in a favor- 
able course of the foreign exchanges, are issued against gold and silver 
bullion, will tend in two ways to increase the bank reserve ; first, by in- 
creasing her deposits, and secondly, by diminishing her securities. This 
will account for the large amount of the reserve. The rule laid down by 
the directors is, that the reserve should be about one third the amount of 
the deposits. 

Having given these explanations, we shall now proceed to noti-ce the 
operations of the banking department of the Bank of England since its 
separation from the issuing department by the act of 1844 : — 

I. The operations of the Banking Department, from the passing of the 
act in 1844, to September 5, 1845. 

The act came into operation on the 31st of August, 1844, and almost 
immediately some important changes were introduced. Up to that date 
the bank had never discounted at a lower rate than four per cent. This 
rate, in ordinary times, had seldom varied, and all bills discounted at the 
same time were charged the same rate. But, on the 5th of September, 
the rate of discount on bills was reduced from four to two and a half per 
cent., and on notes to three per cent. On the 18th of March, 1845, the 
bank introduced the principle of a minimum rate of discount ; fixing two 
and a half per cent, as the rate on first-rate bills, and charging a higher 
rate on other bills. The object of these changes was to employ a portion 
of the reserve in the discount of bills. 

This line of conduct was by no means unwarranted by the practice of 
" other banking concerns." It is an established principle in practical 
banking, that a banker, when he cannot employ his surplus funds at so 
high a rate of interest, as he wishes to obtain, should employ those funds 
at a lower rate, rather than keep them unemployed in his till. And it is 
also an established practice to charge different rates of discount on differ- 
ent bills, according to the class or character of the bills, the respectability 
of the parties, the time they have to run, and a variety of other circum. 
stances. In adopting these regulations, therefore, the directors were only 
performing the work assigned to them, of conducting the banking depart- 
ment " like any other banking concern issuing Bank of England notes." 

These changes gave rise, in the parliamentary committees of 1847, to 
some discussion upon the question as to whether the Bank of England 
governed the market-rate of interest, or the market-rate of interest gov- 
erned the bank-rate. There can be but little difference of opinion upon 
this subject. The " market-rate " of interest is the rate which bankers 
and bill-brokers charge for discounting first-class bills to the public. 
When the foreign exchanges are bringing gold into the country, and notes 
are issued against this gold, the abundance of money in the hands of the 
bankers and bill-brokers causes the market-rate of discount to fall below 
the bank-rate. If during this season the bank charges a high rate, she 
gets but few bills. On the other hand, when gold is going out of the 

90 



The Bank of England. 

country, and money becomes scarce, the market-rate is higher than the 
bank-rate. If during this period the bank charges a low rate, she must 
soon limit her discounts, or her reserve will be exhausted. But, though 
the bank cannot change the course of the current, she can give it in- 
creased strength. Though she cannot make money dear when it is 
cheap, nor cheap when it is dear, yet when it is cheap she can make it 
cheaper, and when it is dear she can make it dearer. Hence, every al- 
teration in the bank-rate has always an immediate influence on the 
market-rate. 

Such was the case in September, 1844. The large importations of 
gold had reduced the market- rate of discount to 2 J per cent., while the 
bank charged 4 per cent. But when the bank reduced her rate to 2J 
per cent., the market-rate went down to 2, and even to 1J per cent. To 
engage actively in discounting bills was a new feature in the bank man- 
agement. In 1832, the then governor stated to the committee of the 
House of Commons, that he thought the bank should be a bank of cir- 
culation and of deposit, and only occasionally a bank of discount. But the 
act of 1844 placed the bank in a new position, and led to the adoption 
of new principles. Formerly the bank had invested her surplus funds in 
government securities. But when she purchased, the price advanced ; 
and when she sold, the price fell. This produced a fluctuation inconve- 
nient to the public. Often, too, she purchased when the price was high, 
and sold when the price was low ; and thus sustained loss. It was there- 
fore deemed preferable to invest a portion of her reserve in the discount 
of bills. The sums thus invested would return as the bills fell due, and 
the reserve could at any time be strengthened by checking the dis- 
counts. 

The directors having determined to invest a portion of their funds in 
discounts, it became necessary to reduce their rate of interest to nearly 
the market-rate, or they would have got no bills. 

An eminent London banker, distinguished by his support of the act of 
1844, says, — " If the bank is to continue as a large discounting body 
(of the expediency of which I entertain considerable doubts), I think it 
very desirable that its rate of interest should conform to the real market 
value of money." (Lords, 1632.) The directors seemed to think it 
necessary that they should in some way employ their reserve, in order to 
prevent the too great accumulation of bank notes in the issue department. 
(Commons, 3009.) We here give no opinion as to the best way of em- 
ploying the bank's reserve, but we are quite ready to admit, as the gov- 
ernor admits in reply to a question, that " the true principles of banking 
are, first, that a bank shall never place itself in such a position as that 
it shall be unable to meet its liabilities ; and next, that it shall employ the 
whole of its resources at the greatest profit that it can with reference to 
prudence, looking to its reserve." (Commons, 3722.) 

In thus coming into competition with the money dealers, reducing the 
rate of interest, exciting a feverish state of feeling in the public mind, and 
giving facilities to the formation of companies for speculative purposes, 
the bank directors are accused of having violated their public duties as the 
bank of the government, and thus sacrificed the interests of the nation to 

91 



A Treatise on Banking. 

the interests of their proprietors. We shall not meddle with this question. 
We have here nothing to do with the public duties of the bank directors. 
We are considering the banking department as " any other banking con- 
cern." Generally speaking, Providence has so constituted human so- 
ciety, that all banking companies, and all individuals too, will most effec- 
tually promote the public interests, when by honorable means they pro- 
mote their own. If this is not the case with the Bank of England, it 
must have arisen from the acts of the Legislature ; and the fact — if it be 
a fact — is presumptive evidence against the wisdom and the justice of 
those laws by which she was placed in that position. 

At the close of this period, we find that the London discounts had in- 
creased from £113,000 to .£2,365,000, and the "City Bonds, &c," 
had increased from .£3,357,000 to ,£4,009,000, owing, it is presumed, 
to the purchase of railway debentures. The circulation of the issuing 
department had increased "from £28,351,295 to £28,953,300 (see the 
Returns at the end of this section), and the minimum rate of interest 
charged by the bank was 2 J per cent. 

H. The Administration of the Banking Department from September 6, 
1845, to September 5, 1846. 

During this period there were three alterations in the minimum rate of 
interest. On October 16th, 1845, it was raised from 2£ to 3 per cent. ; on 
November 6th to 3£ per cent. ; and on August 17th, 1846, it was again re- 
duced to 3 per cent. In fixing the rate of discount, the directors took 
into account the amount of bullion in the issue department, the reserve in 
the banking department, and the amount of the discounts. The amount 
of bullion virtually regulated the other two ; and thus the interest was gov- 
erned by the foreign exchanges. At the same time, the directors, as 
practical bankers, would pay the greatest attention to their reserve, as it 
was only from this source that any advances could be made. Hence, 
sometimes one object of raising the rate of discount was to diminish the 
number of applications. It was thought better to protect the reserve by 
raising the rate, than by positively refusing to discount. , 

In the beginning of 1846, a circumstance occurred which increased both 
the deposits and the discounts of the bank, and added greatly to her profits. 
The railway companies, who were desirous of obtaining acts of Parliament 
to authorize the construction of their lines, were required to pay into the 
Bank of England, within fourteen days of the meeting of Parliament, ten 
per cent, on the estimated amount of their capital, to be returned when 
the company had obtained the act, or when the application had been re- 
jected. Every body wondered beforehand how so large a sum could be 
paid out of the amount of notes then in circulation. But the bank acted 
with the railway deposits as she had been accustomed to act with the 
public deposits previous to the payment of dividends. As fast as the 
money came in, it was lent out ; and thus a transaction of large magnitude 
was effected without much difficulty. This shows the importance of a 
government bank. Had the deposits been required to be lodged in the 
exchequer, and there to remain until reclaimed by the railway companies, 
the operation could not have been effected. The bank could have per- 
formed it with greater facility previous to the passing of the act of 1844. 

92 



The Bank of England. 

She could then have lent out her notes before the lodgments were re- 
quired to be made ; there would have been no previous apprehensions, nor 
any tightness during the operation. 

III. The Administration of the Banking Department from September 
the 5th, 1846, to September the 4th, 1847. 

In September, 1846, the minimum rate of discount was 3 per cent. 
On January the 14th, 1847, it was raised to 3§ per cent., and on the 20th 
of the same month to 4 per cent. ; on April the 8th to 5 per cent., and on 
the 5th of August to 5§ per cent. 

During the whole of this period the foreign exchanges were unfa- 
vorable, and the circulation of the issuing department declined from 
£ 29,760,870 to .£22,396,845. (By deducting £14,000,000 from this 
sum, we see the amount of gold and silver bullion on hand in the issue 
department. ) This was attended by a decline in the reserve of the bank- 
ing department, and an increase in the amount of loans and discounts. 

The bank directors did not raise their rate of discount above 3 per cent, 
until the month of January, 1847. For this they have been severely cen- 
sured by parties who have had the advantage of not being compelled to 
form any opinion until after the result was known. The month of April was 
an important month. From the deficiency of the harvest, large importa- 
tions of corn took place. These imports were paid for in gold, which was 
suddenly withdrawn from the issue department, for exportation. 

Contemporaneous with this export of gold, the government required to 
borrow £ 3,500,000 upon deficiency bills, in order to pay the dividends. 
Under the old system this might not have been a matter of much impor- 
tance, but the case was different under the act of 1844. The banking de- 
partment was rather in danger of getting into what the Americans call a 
" fix." To avoid this " fix," the directors raised the rate of discount to 
5 per cent. ; they refused to led money even upon exchequer bills ; they 
limited their discounts; and they borrowed .£1,275,000 on consols. 
These measures caused a severe pressure on the money market, but it 
soon subsided. From this period the foreign exchanges were favorable 
to this country. 

The operations of this month of April, 1847, have given rise to much 
discussion. 

The advocates of the act of 1844 have pointed to the transactions of 
this month to prove that the management of the issue department cannot 
be safely intrusted to the bank directors. They say that if the bank had 
advanced its rate of interest, they might have prevented the unfavorable 
course of exchange, and consequently have avoided the pressure which 
then occurred. On the other hand, it has been stated that the bank 
ought to be guided in its rates of interest by the amount of its reserve ; 
that from November, 1846, to April, 1847, the reserve was above one 
third of its deposits, a greater reserve than any other bank would think it 
necessary to keep ; that the demand for gold was so sudden, and for so 
large an amount, that no ordinary rules could have prevented it ; and 
even had it been prevented, it might have been injurious to the country, 
as it would have checked the importation of corn, which was then required 
in consequence of the deficiency in the harvest. There can be no doubt, 

93 



A Treatise on Banking. 

that, under the act of 1844, a sudden exportation of gold must cause a 
sudden contraction of the amount of notes in circulation. This " self- 
acting machine " acts by jerks, like a steam-engine without a fly-wheel ■ 
and its advocates look to the banking department to supply the fly-wheel, 
and to cause the machine to move smoothly and equably. It may be 
doubted whether the banking department has the power of doing this. 
But when this is not done, the advocates of the act throw the blame upon 
that department. They resemble the court preceptor, who, when the 
royal pupil did any thing wrong, inflicted the beating on his fellow- 
student. If on this occasion the bank did wrong, it may be feared that it 
was her court connection which led her astray. The government were 
then negotiating a loan of eight millions for the relief of Ireland. And 
" there was a feeling in the court that, in the face of the government ne- 
gotiating a loan, it would be an act of want of courtesy to put up the rate 
of interest immediately." (Commons, No. 3001.) In the secret history 
of the Bank of England we may possibly find other instances of similar 
faults. But if on the present occasion she was influenced by such consid- 
erations, she did not act " like any other banking concern." 

The events of April, 1847, also lead us to remark that the London 
bankers never vary their rate of discount with a view to regulate the for- 
eign exchanges. If it behoves the banking department to do this, it 
has certainly to perform duties which are not considered to belong to 
" any other banking concern." Nor do the London bankers suddenly 
and abruptly stop discounting for those customers in whom they have 
confidence. The frequent occurrence of such suspension of loans and 
discounts as occurred in April, 1847, would form an insuperable barrier 
to the banking department ever acquiring that kind of business which is 
carried on by the London bankers. No merchant would like to depend 
on such a bank for the means of making his daily payments. We be- 
lieve, however, that most mercantile firms that have a discount account 
with the Bank of England, have another banking account elsewhere, and 
some have also accounts with the large bill-brokers. 

The pressure that existed in April, 1847, has been attributed to the 
publication of the amount of the bank's reserve. It was said, and said 
truly, that the bank might very prudently reduce her reserve for a few 
days below the average amount, knowing that, by bills falling due, or by 
other means, she would soon receive a sum that would replenish her cof- 
fers. But the public, seeing only the amount of the reserve, and knowing 
nothing of the sums about to be received, might become unnecessarily 
alarmed, and hence a panic might ensue. Upon this ground, some par- 
ties questioned the policy of publishing the bank accounts in their present 
form. But the remedy for this is not to suppress the returns, but to cir- 
culate throughout the community such an amount of knowledge as shall 
enable them to judge accurately respecting banking affairs. Other par- 
ties, of a higher class than those we denominate the public, have fallen 
into erroneous opinions by a literal adhesion to these returns. Almost up 
to the time of the suspension of the act of 1844, it was contended by 
some who " sit in high places " that there could be no pressure on the 
commercial classes, since there were then more notes in the hands of the 

94 



The Bank of England. 

public than in former seasons when no pressure existed. And before the 
Parliamentary committees of 1847, it was stated by the governor and 
deputy-governor that it could make no difference to the public whether the 
bank advanced three millions, or any other sum, to the government on 
deficiency bills, or advanced the same sum in loans and discounts to the 
commercial classes, inasmuch as the returns would show that the amount 
of notes in circulation would be the same. The events that followed the 
suspension of the act showed the fallacy of these opinions. It was shown 
that the amount of notes in the hands of the public is not of itself a cer- 
tain criterion by which to judge of the amount of banking facilities en- 
joyed by the commercial classes. 

IV. The Administration of the Banking Department from September, 
1847, to September, 1848. 

During this period the minimum rate of interest was advanced from 5| 
to 6 per cent, on the 23d of September ; to 8 per cent., by authority of 
the government letter, on the 25th of October. It was reduced to 7 per 
cent, on the 22d of November ; to 6 per cent, on the 2d of December ; to 
5 per cent, on the 23d of December ; to 4 per cent, on the 27th of Janu- 
ary, 1848 ; and to 3| per cent, on the 16th of June. 

At the commencement of this period a great number of commercial 
houses failed, not only in London, but also in Liverpool and Glasgow, and 
other large places. The following is the account given by the Governor 
of the bank to the committee of the House of Lords : — 

" An unprecedented large importation of food, caused by a deficient harvest, re- 
quired in payment the export of a large amount of bullion, to the extent of about 
£7,500,000, from the coffers of the bank, and probably not less than £1,500,000 from 
other sources, — together £ 9,000,000. From this great reduction in the available capi- 
tal of the country, in addition to the still larger amount invested in railway expendi- 
ture, acting suddenly upon a previous high state of credit and excessive speculation, 
arose the pressure in the money market. There was an abstraction of £ 7,500,000 
from the bullion held by the bank, and consequently a diminution in the notes to that 
extent." (Lords, 12.) 

During this period the bank acted with great liberality. The following 
is a list of the advances made between the 15th of September and the 
15th of November : — 

" 1. The Bank of England being applied to by a very large firm in London, who had 
at that time liabilities to the extent of several millions "sterling, advanced £ 150,000 on 
the security of debentures to that amount of the Governor and Company of the Copper 
Miners in England, and thereby prevented them from stopping payment : it was dis- 
tinctly understood that the operation was for that purpose. 2. The bank advanced 
£50,000 to a country banker on the security of real property. 3. On the urgent rep- 
resentations of several parties of the first importance in the city of London, the bank 
advanced £ 120,000 to the Governor and Company of the Copper Miners, on the guar- 
antee of approved names, taking at the same time a mortgage on the company's prop- 
erty for £270,000 to cover this sum, and the amount of £150,000 debentures before 
advanced upon ; it was stated that the stoppage of this company would have thrown 
ten thousand people out of employment. 4. The bank advanced £300,000 to the 
Royal Bank of Liverpool, on the security of bills of exchange, over and above their 
usual discounts to this bank. This advance unfortunately proved inadequate, and the 
Royal Bank, having no more security to offer, stopped payment. 5. The bank assist- 
ed another joint-stock bank in the country with £ 100.000* on the security of bills of 
exchange, over and above usual discounts. 6. The bank advanced £ 130,000 on real 
property to a large mercantile house in London. 7. The bank advanced £ 50,000 to 

95 



A Treatise on Banking. 

another mercantile house on the guarantee of approved names. 8. The bank ad- 
vanced £ 50,000 to a joint-stock issuing bank on bills of exchange, and agreed to open 
a discount account with the said bank, on condition that it should withdraw its issues, 
but the joint-stock bank stopped payment before the arrangement could be completed. 

9. The bank advanced £ 15,000 on real property to a large establishment in London. 

10. The bank assisted, and prevented from failing, a large establishment in Liverpool, 
by forbearing to enforce payment of upwards of £ 100,000 of their acceptances, and 
engaging to give further aid if required. 11. The bank assisted a very large joint- 
stock bank in the country with advances on loans on bills of exchange to the extent of 
about £800,000, over and above usual discounts. 12. The bank advanced £ 100,000 
to a country banker on real property. 13. The bank advanced a joint-stock bank in 
the country £ 200,000 on the security of local bills, besides discounting £ 60,000 of 
London bills. 14. The bank assisted another joint-stock bank in the country with an 
advance of £ 100,000 on local and London bills. 15. The bank advanced £ 100,000 to 
a large mercantile house in London, on approved personal security. 16. The bank 
assisted a large house at Manchester to resume payment by an advance of £40,000 on 
approved personal security. 17. The bank advanced £30,000 to a country bank on 
real property. 18. The bank assisted many other houses, both in town and country, 
by advances of smaller sums on securities not admitted by the bank under ordinary 
circumstances ; nor did the bank, during the period in question, reject at their London 
establishment any one bill offered for discount, except on the ground of insufficient 
security." ( Commons, 2645.) 

Some of these advances were not made till after the appearance of the 
government letter on the 25th of October. Up to that date the efforts of 
the bank were inadequate to allay the pressure, while they largely re- 
duced the bank's reserve. On Saturday, the 23d of October, a deputa- 
tion from the London bankers waited on the Government, who then deter- 
mined to suspend the act of 1844 ; and on the same day gave intimation 
of their intention to the Bank of England. On Monday morning, a letter 
appeared from Lord John Russell and the Chancellor of the Exchequer, 
authorizing the directors of the Bank of England to enlarge their dis- 
counts and advances, and promising that if by so doing the existing law 
should be infringed, the government would apply to the legislature for a 
bill of indemnity. The letter suggested that these advances should not 
be made at a lower interest than 8 per cent. The effect of this letter was 
immediate. Confidence was restored, the hoarded notes were brought 
into circulation, and discounts were everywhere readily obtained. From 
these causes no infringement of the act took place. 

The state of the bank reserve at the date of the suspension of the act 
occupied the attention of the Parliamentary committees. On Saturday, 
the 23d of October, the notes on hand amounted to £ 1,547,270, and the 
coin to £ 447,246. This, it should be remembered, was the amount at 
the London office and at the thirteen branches put together. At the same 
time the public deposits were .£4,766,000, and the private deposits 
£ 8,581,000, of which £ 1,615,000 belonged to the London bankers. The 
questions put to the governor on this subject seemed designed to show that 
the bank, so far from being able to assist others, was not in a condition to 
meet her own engagements. But the governor contended that the amount 
of the reserve should be taken on the Friday night, before they were ac- 
quainted with the intention of the government to issue their letter. The 
reserve then was £2,376,000. The directors had from £2,000,000 to 
£ 2,500,000 of stock which they could have sold, and a large amount of 
the bills they held fell due in the following week. From these sources 

96 



The Bank of England. 

they would easily have increased their reserve. On the other hand, some 
of ihe witnesses declared that no large amount of stock could have been 
sold, and that, had a run taken place on the London bankers such as 
that which had taken place on the banks at Newcastle, the bankers 1 de- 
posits must have been withdrawn, and the Bank of England itself might 
have been placed in jeopardy. 

As we have considered in a previous section the operation of the act of 
1844, it is not necessary to pursue this subject any further. After the 
government letter was issued, the bank still continued to make advances 
with caution, and, with the view of not infringing the act, they borrowed 
money on the Stock Exchange at seven per cent., though they had the 
unlimited power of issuing notes. 

Soon afterwards the gold began to return, and money became abundant. 
From the high rate of interest, the amount imported was large ; and, from 
trade having been paralyzed by the pressure, the demand for it was very 
small. As the gold increased, the bank rate of interest was reduced. 
By September 2d, 1848, the circulation of the currency department 
amounted to £ 26,883,505, and the bank reserve to £ 9,410,952. 

The following is a copy of the official returns for the four years that 
have passed under review. To show the further progress of the bank 
since September, 1848, we have added the returns for the week ending 
the 2d of February, 1849 : — 

BANK OF ENGLAND WEEKLY RETURNS. 



Account, pursuant to Act 7 and 8 of Victoria, cap. 32, for the weeks ending as follows. 
Issue Department. 





1844, 


1845, 


1846, 


1847, 


1848, 


1849, 




Sept. 7th. 


Sept. 6th. 


Sept. 5th. 


Sept. 4th. 


Sept. 2d. 


Feb. 2d. 




£ 


£ 


£ 


£ 


£ 


£ 


Notes Issued, . . 


28,351,295 


25,953,300 


29,760,870 


22,396,845 


26,883,505 


28,330,845 


Government Debt, 


11,015,100 


11,015,100 


11,015,100 


11,015,100 


11,015,100 


11,015,100 


Other Securities, . 


2,984,900 


2,9S4,900 


2,9S4,900 


2,984,900 


2,934,900 


2,984,900 


Gold Coin and Bullion 


i, 12,657,208 


12.982,591 


13,057,997 


7,373,815 


12,177,567 


13,823,773 


Silver Bullion, . . 


1,694,087 


1,970,709 


2,702,873 


1,023,030 


705,938 


502,072 




£28,351,295 £23,953,300 £29,760,370 £22,396,845 £26,833,505 £28,330,845 






Banking Department. 








1844, 


1845, 


1846, 


1847, 


1848, 


1849, 


Liabilities. 


Sept. 7th. 


Sept. 6th. 


Sept. 5th. 


Sept. 4th. 


Sept. 2d. 


Feb. 2d. 




£ 


£ 


£ 


£ 


£ 


£ 


Proprietors' Capital, 


14,553,000 


14,553,000 


14,553,000 


14,553,000 


14,553,000 


14,553,000 


Rest, 


3,564,729 


3,608,180 


3,864,479 


3,986,593 


3,826,332 


3,576,625 


Public Deposits,* . 


3,630,809 


6,474,705 


7,318,919 


7,722,704 


5,021,591 


3,922,307 


Other Deposits, 


8,644,348 


8,507,213 


;8, 557, 109 


6,791,373 


8,824,607 


11,323,544 


Seven-Day and other 














Bills, . . . 


1,030,354 


1,021,639 


935,830 


842,711 


1,016,921 


1,144,824 




£31,423,240 £34,164,787 £35,229,337 £33,896,381 £33,242,501 


£34,525,300 



* Including Exchequer, Savings Banks, Commissioners of National Debt, and Dividend Accounts. 

97 



A Treatise on Banking. 





1844, 


1845, 


1846, 


1847, 


1848, 


1849, 


Resources. 


Sept. 7th. 


Sept. 6th. 


Sept. 5th. 


Sept. 4th. 


Sept. 2d. 


Feb. 2d. 




£ 


£ 


£ 


£ 


£ 


£ 


Government Securi- 














ties,* . 


14,554^834 


13,468,643 


12,S61,735 


11,636,340 


12,462,735 


13,882,267 


Other Securities, 


7,835,616 


11,967,081 


12,523,550 


17,508,119 


11,368,814 


10,314,654 


Notes, . 


8,175,025 


8,255,505 


9,231,095 


4,189,830 


8,784,795 


9,553,460 


Gold and Silver Coin, 


857,765 


473,558 


512,957 


562,092 


626,157 


774,919 



£31,423,240 £34,164,787 £35,229,337 £33,896,381 £33,242,501 £34,525,300 

We have thus taken a review of the first four years of the proceedings of 
the Banking Department of the Bank of England. Whatever may be the 
future operations of that department, this portion of its history will always 
be interesting. This period is remarkable also as containing one of those 
monetary cycles to which we must always be liable as long as our cur- 
rency is regulated by the act of 1844. Each year has a peculiar char- 
acter. The first commenced at a period of full currency ; money was 
abundant and cheap, the minimum of the bank-rate being 2% per cent. 
In the second year the exchanges fluctuated, and the rate of interest fluc- 
tuated also. During the whole of the third, the exchanges were unfavor- 
able ; gold was exported, and the rate of interest advanced. At the com- 
mencement of the fourth year came the pressure ; then a favorable course 
of exchange brought back the gold, the rate of interest was reduced, and 
again money became abundant. 

This period is, moreover, important as an indication of the principles on 
which the banking department will hereafter be governed. The governor 
and deputy-governor were examined before the Parliamentary committees 
in March, 1848. They stated that they approved of the reduction of in- 
terest in September, 1844 ; but they expressed regret that the bank had 
not advanced the rate of interest in November, 1846, and that they suf- 
fered the reserve to fall so low in October, 1847. Should these sentiments 
be acted upon in future, we may expect that the " banking department " 
will reduce its rate of interest as heretofore ; but when money becomes 
scarce, it will advance its rate at an earlier period, and be less liberal in 
making advances. 

The following question was put to the governor by a member of the 
committee of House of Commons : — " You have described as part of 
the operation of the act of 1844, that you were during the year 1847 
obliged to lend consols instead of notes, on account of the limit prescribed 
by the act ; that you borrowed on consols in April ; that you were obliged 
to raise the rate of interest to 9 per cent. ; that you refused loans on ex- 
chequer bills ; that there was a pressure in April and a panic in October ; 
and that Government were obliged to interpose by a letter, in order to 
protect the public from the restrictive effects of the act : Do you call that 
a satisfactory history of any system ? " ( Commons, 3450.) 

We must, however, distinguish between the " system " as established 
by the act of Parliament, and the administration of the banking depart- 
ment in consequence of the establishment of that system. We have 
given in the preceding section our opinion of the system. But the ad- 

* Including Dead Weight Annuity. 

98 



Joint-Stock Banks. 

ministration of the Banking Department of the Bank of England under 
the system has, in our sober judgment, been distinguished by a high de- 
gree of both wisdom and liberality. 

The administration of the banking department since September, 1848, 
does not call for any particular remark. We have had the usual indica- 
tions of the first stage after a panic. The bullion in the issue department 
has increased from £ 12,883,505 to £ 14,330,845 ; the notes in reserve 
from £ 8,784,795 to £ 9,553,460. Money has been abundant, and the 
rate of interest low. On the 2d November, 1848, the bank reduced the 
minimum rate of discount to 3 per cent. This would probably have been 
done at an earlier period but for the political aspect of the continent. 
The same reason possibly has induced the directors to maintain the same 
interest to the present time (February, 1849), although this appears to be 
an abandonment of the principle adopted in the year 1844. 



Section X. — THE ADMINISTRATION OF JOINT-STOCK BANKS, 
WITH INQUIRY INTO THE CAUSES OF THEIR FAILURES. 

The chief points in which a joint-stock bank differs from a private bank 
are, the number of its partners, the permanency of its capital, and the 
form of its government. A private bank has not more than six part- 
ners ; a joint-stock bank may have a ^thousand partners. If a partner 
in a private bank die, or become insolvent, his capital is withdrawn from 
the bank ; in the case of a partner in a joint-stock bank, his shares 
are transferred, and the capital of the bank remains the same. In a pri- 
vate bank all the partners may attend to its administration ; a joint-stock 
bank is governed by a board of directors. The business principles on 
which these two kinds of banks are administered are the same, and the 
observations of the preceding sections will equally apply to both. The 
topics, therefore, to which we shall in this section more particularly direct 
our attention, will be those that have a special reference to the constitution 
of joint-stock banks. We shall describe these banks as they now exist, 
and then notice those modifications which are imposed on new banks by 
the "Act to regulate Joint-stock Banks" (7 and 8 Vict., cap. 113), 
passed in the year 1844. After the 6th of May, 1844, it was not lawful 
for any new company of more than six persons to carry on the trade or 
business of bankers in England, unless by virtue of letters patent to be 
granted by her Majesty according to the provisions of that act. 

I. All joint-stock banks have a certain amount of paid-up capital. 

The payment of a certain portion of the capital before the commence- 
ment of business, is a pledge that the project is not a mere bubble, and 
this is especially necessary when the proprietors have no further liability. 
But even with unlimited liability a certain amount appears to be neces- 
sary. The employment of capital judiciously is sometimes a means of 
acquiring business ; and in case of loss, there should always be a suffi- 
cient capital to fall back upon without recurring to the shareholders. 

99 



A Treatise on Banking. 

There is an evil in a bank having too small a capital. In this case, the 
bank will be but a small bank ; the number of proprietors will be few, 
and the number of persons eligible to be chosen directors will be few ; 
hence there will not be the same guarantee for good management. If a 
bank with a small capital have also a very small business, it had much 
better cease as an independent establishment, and become the branch of a 
larger bank. If, on the other hand, it has a large business, with a large 
circulation, large deposits, and large loans or discounts, its losses will 
sometimes be large, and hence the whole capital may be swept away. 
It is true, that while it avoids losses, the shareholders will receive large 
dividends, but these large profits had much better be left in the bank as 
an addition to its capital, than shared among the proprietors in the form 
of dividends. There is danger, too, that the high premium on those 
shares may induce many shareholders to sell out and form other, and per- 
haps rival, establishments. 

On the other hand, there is an evil in a bank having too large a capital. 
In this case, as the capital cannot be employed in the business, the direc- 
tors are under the temptation of investing it in dead or hazardous securities 
for the sake of obtaining a higher rate of interest ; perhaps, too, they may 
speculate in the funds, and sustain loss. Hence it is much better that a 
bank should commence business with a small capital, and increase the 
amount as the business may require. 

It is difficult to state in all cases what proportion a capital ought to bear 
to the liabilities of a bank. Perhaps the best criterion we can have is the 
rate of dividend, provided that dividend be paid out of the business profits 
of the company. When we hear of a bank paying from fifteen to twenty 
per cent, dividend, we may be assured that the capital is too small for the 
business. The liabilities of the bank, either in notes or deposits, must far 
exceed the amount of its capital. As a general maxim, the greater the 
capital the less the dividend. Let the whole capital be employed at any 
given rate of interest, say three per cent., then the capital raised by notes 
or deposit, produce, after paying all expenses, a certain sum as profit. 
Now, it is evident that if this amount of profit be distributed over a large 
capital, it will yield a less rate per cent, than when distributed over a 
small capital. Sometimes, however, a large capital may have increased 
the rate of dividend, in consequence of having been the means of acquir- 
ing a large increase of business. It may have done this in consequence 
of inspiring the public with confidence in the bank, and thus inducing 
them to make lodgments or circulate its notes ; or it may have enabled 
the bank to make large advances, and thus gained the support of wealthy 
and influential customers. 

Although the proportion which the capital of a bank should bear to its 
liabilities may vary with different banks, perhaps we should not go far 
astray in saying it should never be less than one third of its liabilities. I 
would exclude, however, from this comparison all liabilities except those 
arising from notes and deposits. If the notes and deposits together 
amount to more than three times the amount of the paid-up capital, the 
bank should call up more capital. It may be said, that the bank is liable 
also for its drafts upon its London agents, and for the payment of those 

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Joint- Stock Banks. 

bills which it has indorsed and reissued : admitted ; but in both these 
cases the public have other securities besides that of the bank. 

Presuming that banks are to commence with a moderate amount of 
capital, and to increase that amount as the business increases, the question 
is suggested, what is the best way of increasing the capital ? The Eng- 
lish banks have followed two ways of doing this ; one, by a further issue 
of shares ; and the other, by further calls upon the existing shareholders. 
The capital of all the joint-stock banks in England is divided into certain 
portions, called shares ; each proprietor holds a certain number of these 
shares, and pays a certain sum upon them. Tf he wishes to transfer a 
portion of his capital he cannot transfer a half share or a quarter share, 
but must transfer a whole share, or a certain number of shares. Thus, if 
the capital of a bank be £ 500,000 it may be divided into 5,000 shares of 
£ 100 each, or 50,000 shares of =£10 each, and a certain proportion of 
the amount of each share will be paid up ; and this proportion is called 
the real or the paid-up capital. Thus, if one tenth of the above capital is 
paid up, then £ 50,000 will be the real or paid-up capital, and £ 500,000 
will be called the nominal capital. In the chartered banks, on the other 
hand, there is usually no nominal capital, and the real capital is not 
divided into shares or portions, but any fractional sum may be trans- 
ferred. The capital is then called stock. When there is no nominal 
capital, nor any way of increasing the amount of the real capital, this is 
the best way. But, in the other case, it is more convenient to have the 
capital divided into shares. 

Some persons have objected altogether to a nominal capital ; but their 
objections have been directed more to the misrepresentations that may at- 
tend it, than to the thing itself. They say, " a bank announces that it 
has a capital of .£500,000, whereas few shares are issued, and but a 
small sum is paid on each share ; hence people are misled, and the bank 
acquires a confidence which it does not deserve." The objection here is 
against representing the nominal capital to be paid-up capital ; it does not 
bear upon the principle of a nominal capital. In fact, we are misled by 
words. What is called nominal capital, is nothing more than a further 
sum, which the directors have the power of calling up. If this sum had 
not been called capital, it would not be objected to, as it could lead to no 
misapprehension. But the inquiry simply is, ought the directors to have 
the power of calling upon the shareholders for a further amount of capital 
beyond that already paid up ? Were they not to have the power, the 
bank would at its commencement probably have too large a capital, and 
after its business had advanced would have too small a capital. And if 
the bank, by any unforeseen occurrence, became involved, and should 
have occasion for further sums to extricate itself from its difficulties, it 
could not make any further call upon its shareholders, although a very 
small advance might prevent its utter ruin. In case of a very large capi- 
tal, such as two or three millions, a nominal capital may not be neces- 
sary, as so large a sum is likely to be in all cases amply sufficient. But 
in banks of a second class, it will always be best to give the directors the 
power of making further calls upon the shareholders. 

The second way of increasing the capital of a bank is, by the issue of 

101 



A Treatise on Banking. 

new shares. The whole amount of shares to be issued is fixed in the firs 
instance, and the bank commences as soon as a certain proportion has 
been issued. If the bank were not allowed to commence business until 
the whole of the shares were taken, a small amount would be fixed upon, 
and the bank would be proportionably weaker. But by beginning with a 
small number of shares, you have capital enough for your business, and 
you acquire more as you proceed. Many persons will join a bank after 
it is established, who would not take shares at the commencement. Some 
shares are therefore reserved for persons of this description ; and as the 
shares are more valuable when the success of the undertaking is no 
longer doubtful, they are often given out at a premium, and always a 
greater degree of caution is exercised as to the persons to whom they 
are distributed. 

Some members of the Parliamentary committee of 1836 appear to have 
an objection to shares of a small amount ; they apprehend that these 
shares are taken by an inferior class of persons ; and hence the body of 
proprietors are less respectable. But it would appear from the returns 
that the general effect of small shares is, that each shareholder takes a 
greater number. Thus in the banks of £ 100 shares, each proprietor has 
taken upon an average twenty-eight shares, on which he has paid the sum 
of £ 444. In the banks of £ 20 shares, each proprietor has taken forty- 
three shares, and paid £ 359. In the banks of £ 10 shares, each proprie- 
tor has taken fifty-two shares, and paid £ 400. While in the only bank 
of £5 shares, each proprietor has taken 117 shares, and paid ,£585. It 
appears to me that the chief objection to which small shares are liable is, 
that they do not admit of a large amount of nominal capital. The banks 
of £ 5 and £ 10 shares have usually the whole capital paid up ; and hence, 
in case of necessity, the directors have no power to call for a further 
amount. Could the Northern and Central Bank have made a call upon 
their shareholders of £ 5 per share, this bank might have been saved from 
destruction. 

According to the new act above referred to, no bank can now be 
formed with a less capital than £ 100,000 ; and the shares must not be 
less than £ 100 ; of which 10 per cent, must be paid up before the sign- 
ing of the deed of settlement ; and all the shares must have been sub- 
scribed for, and half the amount paid up, before the bank commences 
business. 

II. Joint-stock banks are governed by a board of directors. 

" The directors are chosen from among the shareholders at a general 
meeting; the pecuniary qualification being that they hold a stipulated 
number of shares in the company. v 

" There are several points of view in which a man becomes eligible as 
a director of a bank, independent of his qualification as the holder of the 
required number of shares. Indeed, his qualification as a shareholder 
merely must not be taken into the account. 

"1. He ought, in the first place, to be a man enjoying public confi- 
dence. Unless he is a man whom the community contemplate as de- 
serving of their confidence and esteem, it is not presumable he can be of 
much service to the bank, either by his influence or character. The 

102 



Joint-Stock Banks. 

public are not likely to deposit their money in an establishment where 
they cannot place the fullest reliance upon the directors ; and, for the 
same reason, parties of respectability will not readily be induced to open 
accounts with the bank. 

" 2. He ought to be a man possessing a knowledge of commercial 
business. It is a matter of great importance to the satisfactory and effi- 
cient management of a bank, that those to whom is intrusted the direction 
of its affairs, be in some measure conversant with the ordinary affairs of 
trade. Men who are retired from business are unquestionably the most 
eligible, not merely from their business knowledge, but because they are 
not apt to be contemplated with that suspicion, jealousy, and distrust 
which tradesmen will sometimes exercise towards such directors of a bank 
as are likewise engaged in trade. But retired men of business are not 
readily to be had as directors of a bank, nor are they in most cases dis- 
posed to accept of such an office. Where such is the case, men of high 
standing and character, engaged in trade, should be sought for. 

" 3. A bank director should be a man of strict integrity and upright- 
ness. This is a qualification perfectly indispensable to the welfare of the 
bank. He must be above all trafficking in the stock of the company, or 
taking any undue advantage over the other shareholders through his inti- 
mate knowledge of the state of their affairs as regards the bank. He 
must never for a moment forget, that while he is a partner in the concern, 
and, as an honest man, is bound to conduct it in as faithful and diligent a 
manner as he would his own private affairs, that he is at the same time 
appointed to a solemn trust, in having the interests of numerous others, 
equally interested with himself, under his mangement and control. In 
fact, unless the director of a bank is a man of strict integrity, he is placed 
in a position calculated to be productive of great mischief. He is invest- 
ed with power to ruin the fortunes of others, and to inflict much com- 
mercial evil upon the community. Where there is a want of integrity, 
there is a want of principle, and the bank must necessarily be misman- 
aged. 

" 4. A bank director should be a man of influence and respectability. 
He ought to be a man well known and respected in the district. Such a 
man is desirable in a variety of ways. He adds his own personal respec- 
tability to the establishment, and he influences the favor and support of 
his friends and acquaintances. His standing in society gives the public 
confidence in the establishment with which he is connected, and they 
bring their money and business to its support ; the paper of the bank be- 
comes more readily current in the district, and the weight of his influence 
destroys any suspicion of its stability. 

" 5. A bank director should be in good pecuniary circumstances. It 
would be a most wholesome regulation, were it stipulated in all deeds of 
settlement, that no bank director should be privileged to overdraw his ac- 
count. The great facilities which directors enjoyed of raising money 
from overdrawing their bank accounts, have, in some instances, resulted 
in extensive commercial disasters, and in the total wreck of large estab- 
lishments. The temptation to speculations of all descriptions which such 
facilities hold out, necessarily increases the risk of the bank, and induces 
H 103 



A Treatise on Banking. 

a less rigid inspection of the accommodation afforded to other customers. 
Where those who are intrusted with the management of the bank forget 
the extent and importance of the trust reposed in them, and begin to enter 
into unwarrantable speculations with the funds committed to their care, it 
is not supposable that they will be particularly scrupulous as to the general 
management of the affairs of others. 

" 6. A bank director should be one who can bestow some attention 
upon the affairs of the establishment. It has appeared in evidence that 
gentlemen have been appointed, and have accepted the office of directors 
of banks, who gave little or no attention to the affairs ; who, in fact, ap- 
pear to have considered that the office of director was conferred on and 
accepted by them more for the purpose of complying with the letter of 
the deed of settlement, which enjoined the appointment of a certain num- 
ber of directors, than from any idea of their being expected, or of its be- 
ing necessary for them, to know anything regarding the management. 
The consequence of this has been, that the duties which the shareholders 
devolved upon, perhaps, six individuals, were confined to two, or possibly 
only one, and the others approving, without suitable knowledge or proper 
inquiry, of all their acts, the mass of shareholders, as well as an extensive 
commercial circle, have been involved in the disastrous results of misman- 
agement. It is altogether an anomaly that any man, or body of men, 
should have the credit, honor, and distinction of being managers and di- 
rectors of a bank, and yet not exercise any of the active functions and im- 
portant duties that relate thereto. Upon what principle can they undertake, 
as by accepting the office they unquestionably do, to discharge a solemn 
trust, in faithfully administering the affairs of a bank, into which they make 
it no part of their business to look ? Were the fact not very well known, 
it would seem absurd ; yet it is not the less absurd that it is known.'" 
(Philosophy of Joint- Stock Banking, by G. M. Bell.) 

Mr. Taylor, in his " Statesman" makes the following observations 
upon the age of members of public boards : — 

"Boards, or other cooperative bodies, should be so formed that youthfulness and 
elderliness may meet in due proportion in their counsels. If any such body be wholly 
composed of elderly men, it will commonly be found to be ineffective, so far as inven- 
tion of new courses and intrepidity of purpose are required, and, perhaps, also unequal 
to any unusual amount of spontaneous activity. If, on the other hand, it be composed 
wholly of young men, its operations will probably be wanting in circumspection ; and 
the foresight by which it will be guided will be too keenly directed to the objects of 
a sanguine expectation, too dully to prospects of evil and counteraction. The respec- 
tive positions in life of the young and the old operate to these results not less than 
their temperaments ; for the young have their way to make, their reputation to earn, 
and it is for their interest to be enterprising, as well as in their nature ; the old have 
ascertained their place in life, and they have, perhaps, a reputation to lose." 

The new act requires that provision shall be made in the deed of 
partnership " for the retirement of at least one fourth of the directors 
yearly, and for preventing the reelection of the retiring directors for at 
least twelve months." 

III. Joint-stock banks have a principal officer, called a manager. 

" The prudent and satisfactory management of a joint-stock bank very 
materially depends upon the upright and consistent discharge of those so- 

104 



Joint- Slock Banks. 

cial duties and reciprocal interchanges of confidence which ought to char- 
acterize the directors and manager. 

" The manager, from his experience, and the importance of the office 
he fills, is entitled to the kind consideration and entire confidence of the 
directors. He is selected by them to occupy an arduous and highly re- 
sponsible situation, and ought to be rewarded, not merely with an adequate 
pecuniary remuneration, but with the respect and friendship of the di- 
rectors, by whom he should be considered in every respect, so far as re- 
gards the bank, at least upon an equally elevated footing. Without the 
confidence and friendship of the directors, he can neither take his place at 
their meetings free from restraint, discuss with them matters relating to 
the welfare of the establishment with composure, nor appear before the 
customers with that satisfaction and independence which is required to the 
proper discharge of his duties. Having placed him in the position of 
manager of the bank, it is their duty always to contemplate him in that 
light, to respect and confide in his opinions and conduct, which in many 
cases have been formed by long years of active and arduous employment 
in the profession ; and to speak well of him among their friends and ac- 
quaintances. In the degree in which the manager is respected, and well 
spoken of by the directors, will respect and confidence be extended to 
him, and consequently to the establishment, by the public, and a good 
opinion entertained of their judgment and discernment in his selection. 

" The conduct of the manager ought to be characterized by great cir- 
cumspection and uprightness. He ought, unquestionably, in every in- 
stance, to be chosen for his business qualifications, and not because he is 
a rich man, a gentleman, a man of fashion, or a man with an extensive 
circle of friends. To choose him on account of any one of these qualifi- 
cations, and not principally from his practical experience of banking, 
would be similar to appointing a man to the care and management of a 
steam-engine, who knew nothing of its mechanism, nor the nature of its 
operation, but was recommended solely because he had a taste for travel- 
ling ; or it would be like placing a man at the helm to pilot a vessel over 
quicksands, and through a reef of rocks, who knew nothing of a seafaring 
life, but was fond of contemplating the grandeur of the elements. The 
manager of a joint-stock bank ought to be chosen exclusively for his ex- 
perience in banking ; other qualifications are well enough in their own 
place, but ought never to be taken into consideration in choosing a person 
to act as manager of a bank. In this way a stimulus is given to persons 
of talent, who may be looking forward to the reward of a life of toil and 
drudgery ; and thus merit is patronized and protected. In a well-regulated 
office no one will be promoted over the head of another, but a prudent se- 
lection being made at the outset, a system of regular promotion should be 
uniformly practised. 

" The manager of a bank may be contemplated in three important 
points, — in his intercourse with the customers and the public ; with the 
directors ; and with the subordinate officers of a bank. In each of these 
departments he has important duties to perform. He must be scrupulously 
diligent in his attention to the affairs of the bank, courteous in his inter- 
views with the public, affable and unreserved in his communications with 

105 



A Treatise on Banking. 

the directors, and kind and conciliating towards the subordinates of the 
bank, treating them as those who may be one day placed in a similar situa- 
tion with himself. The days are now gone past when a man of business was 
considered in the light of a machine, a mere automaton for the purpose of 
forming figures and casting up accounts ; but it is still necessary, enlarged 
as our views of the powers and capabilities of the human mind are, in 
order to the proper management of any business, that it be carefully at- 
tended to. The manager of a joint-stock bank, being allowed a compe- 
tent salary, cannot be justified in occupying his time with any other em- 
ployment which may occasion his absence from the duties of the bank. 
But it is not intended to insinuate that he must be a man of one idea, and 
restrained from turning his mental acquirements to his own amusement 
or profit. This would be as absurd as it would be unreasonable. Nor is 
it meant that a man of business may not be also a man of great erudition, 
and, it may happen, of literary and scientific eminence. On the contrary, 
it cannot be denied that, in the present day, this is often the case. What 
is contended for is, that the bank is entitled to, and ought to have, his 
close and chief attention. 

" As it is obvious that he cannot manage any other trade or profession, 
without sacrificing or delegating more or less the duties he owes to the 
bank, it seems also very doubtful whether he can be justified in taking a 
prominent part in public or political affairs. There are two arguments 
against his being a public character : the first is, that he may be drawn 
away during the hours of business ; the second, that, by becoming a par- 
tisan, he is certain of being more or less obnoxious to a portion of the in- 
habitants, and, it may be, of the bank's customers. A man whose mind 
is occupied in framing political speeches, in promoting political schemes, 
and whose time is partially given to political, magisterial, or other meet- 
ings, cannot possibly, from the exciting nature of such subjects, give that 
cool, deliberate, and uniform attention to the duties of the bank which they 
necessarily require. 

". The customers ought always to be treated with civility and kindness, 
their business transacted promptly and cheerfully, and every inquiry re- 
garding their accounts, or any matter of business, readily and satisfac- 
torily explained. When an accommodation is to be declined, it ought to 
be done in as polite and inoffensive a manner as possible, the manner of 
a refusal being of paramount moment to the character of a manager. 

" The shareholders, being, in other words, the proprietors of the bank, 
are to be received with that freedom and confidence which is due to their 
character as such, but without compromising or revealing to them either 
the business and accounts of each other, or of the customers of the bank. 

" Next to being secret and cautious, a manager ought to be prompt and 
decided in all his measures, free from party influence, and firm in his 
purpose. A habit of promptitude and decision is very essential to the 
proper regulation of the business of a bank, and acquired by forethought 
and circumspection. It is, perhaps, a constitutional virtue which cannot 
be enjoyed by every one in the same degree, but it is nevertheless a vir- 
tue which every one may acquire by proper attention. Nothing makes a 
manager look more silly and contemptible than a hesitating, dubious- and 

106 



Joint- Stock Banks. 

capricious manner. His answer ought to be prompt and satisfactory ; he 
should be sufficiently acquainted with business to say at once whether an 
act can be done or not, and should appear free from restraint, and not dis- 
posed to alter an opinion when once formed." (Bell's Philosophy of 
Joint- Stock Banking.) 

IV. In joint-stock banks the administrative functions are usually dis- 
tributed between the directors and the manager. 

With reference to both private and joint-stock banks, the distribution of 
the administrative functions is a most important topic of inquiry. By 
what parties ought these functions to be exercised ? We have spoken of 
" the banker," as though a bank consisted of only one person, and this 
one person administered all the powers and functions of the bank. But 
few banks consist of only one person. One class of banks consists of 
two, three, four, five, or six persons, some or all of whom attend to the 
practical administration of the bank. Another class of banks consists of a 
great many, it may be of several hundred persons, who appoint some 
dozen or score of their own number to administer the bank on their 
behalf. 

But how many soever the number of partners may be in a bank, the 
administrative functions are in fact practically exercised by a small num- 
ber of persons. A private bank may consist of as many as six partners, 
but it is rarely, we believe, that so many as six are actually engaged 
in the business. When more than one are thus employed, their duties 
may be distributed according to their seniority or other circumstances. 
In ordinary matters there may be a division of labor, and each partner 
may preside over a distinct department of the business. But in all im- 
portant cases there is usually one leading partner who practically guides 
the others. , When a bank has risen speedily to eminence, it has gener- 
ally been through the talents of some one man. It does not follow that 
this one man did not receive great assistance from the advice or sugges- 
tions of his partners. It is the part of a wise man to avail himself of the 
knowledge and wisdom of others ; and he will often gather much useful 
information from men far below himself in general talents. There is, per- 
haps, more uniformity, consistency, and energy in the proceedings of a 
bank managed by a few partners, than by many. On the other hand, 
banks have sometimes been ruined by placing too much power in the 
hands of one or two of the partners. 

In a joint-stock bank, though the number of directors may be large, the 
daily exercise of the administrative power is practically in the hands of a 
few persons. In some banks this power is vested solely in the manager ; 
sometimes in one or two managing directors ; sometimes in a permanent 
committee of two directors and the manager ; and in other cases, in a 
changeable committee, on which each member of the board takes his rota 
of service for two or three weeks in succession. In all cases, however, 
the board of directors lay down the general principles on which the bank 
is to be administered ; reports are made to them at their weekly meeting, 
of the actual condition of the bank in all its departments, and all very im- 
portant matters are reserved for their special consideration. 

V. Some joint-stock banks have many branches. 

107 



A Treatise on Banking. 

When the law existed in England that no bank should have more thnn 
six partners, the branch system scarcely existed. In some cases, a bank 
had a branch or two a few miles distant, but no instance occurred of a 
bank extending itself throughout a county or a district. But with joint- 
stock banking arose the branch system ; the head office was placed in the 
county town, and branches were opened in the principal towns and vil- 
lages around. The credit of the bank being firmly established, its notes 
circulated freely throughout the whole district. The chief advantages of 
this system are the following : — 

There is greater security to the public. The security of the whole 
bank is attached to the transactions of every branch ; hence there is 
greater safety to the public than could be afforded by a number of sepa- 
rate private banks, or even so many independent joint-stock banks. 
These banks could have but a small number of partners, the paid-up capi- 
tal and the private property of the partners must be comparatively small ; 
hence the holder of a note issued by one of the independent joint-stock 
banks could have a claim only on that bank : but if that bank, instead of 
being independent, were a branch of a large establishment, the holder of 
a note would have the security of that large establishment ; hence the 
branch system unites together a greater number of persons, and affords a 
more ample guarantee. 

The branch system provides greater facilities for the transmission of 
money. The sending of money from one town to another is greatly fa- 
cilitated, if a branch of the same bank be established in each of those 
towns, for all the branches grant letters of credit upon each other. 
Otherwise you have to ask the banker in the town from which the money 
is sent, to give you a bill upon London, which is transmitted by post ; or 
you request him to advise his London agent to pay the money to the 
London agent of the banker who resides in the town to which the money 
is remitted. This takes up more time, and is attended with more ex- 
pense. A facility of transmitting money between two places usually fa- 
cilitates the trade between those places. 

The branch system extends the benefits of banking to small places 
where independent banks could not be supported An independent bank 
must have an independent board of directors, who in most cases will be 
better paid ; the manager must have a higher salary, because he has a 
heavier responsibility, and a large amount of cash must be kept unem- 
ployed in the till, because there is no neighbouring resource in case of a 
run. There must be a paid-up capital, upon which good dividends are 
expected ; a large proportion of the funds must be invested in exchequer 
bills, or other government securities, at a low interest, in order that the 
bank may be prepared to meet sudden calls ; and the charge for agencies 
will also be more. On the other hand, a branch has seldom need of a 
board of directors, one or two being quite sufficient ; the manager is not 
so well paid ; there is no necessity for a large sum in the till, because, in 
case of necessity, the branch has recourse to the head office, or to the 
neighbouring branches ; nor is a large portion of its funds invested in gov- 
ernment securities that yield but little interest, as the head office takes 
charge of this, and can manage it at a less proportional expense. Besides, 

108 



Joint- Stock Banks, 

at some branches the manager attends only on market days, or once or 
twice a week. The business done on those days would not bear the ex- 
pense of an independent establishment. 

The branch system provides the means of a due distribution of capital. 
Some banks raise more capital than they can employ ; that is, their notes 
and deposits amount to more than their loans and discounts. Others 
employ more capital than they raise, that is, their loans and discounts 
amount to more than their notes and deposits. Banks that have a surplus 
capital usually send it to London to be employed by the bill-brokers. 
The banks that want capital must either restrict their business, or send 
their bills to London to be re-discounted. Now, if two banks, one having 
too much, and the other too little capital, be situated in the same county", 
they will have no direct intercourse, and will consequently be of no as- 
sistance to each other : but if a district bank be established, and these two 
banks become branches, then the surplus capital of one branch will be 
sent to be employed at the other, thus the whole wealth of the district is 
employed within the district, and the practice of re-discounting bills in 
London will be proportionably diminished. 

The branch system secures a better system of management. The only 
way to secure good management is to prevent the formation of small banks. 
When banks are large, the directors are men of more wealth and respecta- 
bility ; they can give large salaries to their officers, and hence can command 
first-rate talent ; there will be a more numerous proprietary ; and in a 
large number there will be always some active spirits who will be watch- 
ful of the conduct of the directors and the manager ; besides, in a numer- 
ous proprietary there is a greater number of persons eligible to be direct- 
ors, and consequently there is a wider choice. In populous cities, such as 
London or Manchester, a large bank may be formed without branches ; 
but in smaller places there is no way of forming a large bank but by- 
giving it branches throughout the district. A branch bank in a small 
town will probably be better managed than an independent bank in the 
same place. The directors and manager of the branch will be appointed 
by the directors at the head office, assisted by the general manager, who 
are very competent to judge what qualifications are necessary for these 
offices, and who would not be biassed by local partialities. But the di- 
rectors of the independent bank would most likely be self-appointed, or 
chosen by the proprietors, because no others could be obtained, and these 
directors would appoint some friend of their own to be manager. The 
manager of the branch, besides the superintendence of the directors, 
which he has in common with the manager of the independent bank, 
will be subject to visits from the general manager or the inspector ; and 
he must send weekly statements of his accounts to the head office. The 
consciousness of responsibility will thus secure a more anxious attention 
to his duties ; and besides, he will probably be looking forward for promo- 
tion to a higher branch as a reward for his successful management. 
These circumstances seem to insure a higher degree of good manage- 
ment to the branch. 

At the same time, it must be admitted that banks with numerous 
branches require a proportionate paid-up capital, and that the capital be 

109 



A Treatise on Banking. 

kept in a disposable form ; it also requires vigilant and constant inspec- 
tion, and a rigid system of discipline. 

A proportionate paid-up capital is necessary, because, in case of a run, 
there are a greater number of points of attack ; hence the funds must be 
divided to meet all these possible attacks, for if one branch be overpow- 
ered, the whole bank is immediately exposed to suspicion. 

Another danger arises from the incompetency or negligence of the 
managers of branches. Among a number of men, it is not likely that all 
are clever, and all prudent ; and one case of neglect on the part of one 
manager may, in times of alarm, throw discredit on the whole establish- 
ment. Besides, there is sometimes danger even from the zeal of the branch 
managers. Each manager is naturally anxious to increase the business 
of his own branch ; and he will perhaps find that the most easy way of 
doing this is to extend his loans and discounts. Hence each manager 
tries to employ as much capital as he can ; and the urgent remonstrances 
he receives from head quarters, requiring him to restrict his discounts, are 
either evaded or delayed. Thus the bank proceeds until some heavy de- 
mand for money arises at head quarters, and it is then found that all the 
capital of the bank had been absorbed by the branches. These advances 
cannot be suddenly recalled, and thus the bank may be ruined. 

What number of branches a bank ought to have, and what distance 
they ought to be from the head office, have been the subject of much dis- 
cussion. No general rules can be given. The subject may very safely 
be left to the discretion of the banks themselves. Several of the banks in 
Scotland have from thirty to forty branches. The Provincial Bank of 
Ireland, whose head office is in London, have branches spread all over 
Ireland. I am not aware that in these cases any danger or inconvenience 
has been experienced. When branches are found troublesome or un- 
profitable, they will very soon be discontinued. In some instances, even 
in Scotland, the branches of the larger banks have been withdrawn in con- 
sequence of being unable to sustain a competition with the local banks of 
the district. 

Had the act of 1826 permitted joint-stock banks of issue to be estab- 
lished in London, we should probably by this time have had ten or a 
dozen banks having their head quarters in London, and extending their 
branches throughout the country. But as the law prohibited joint-stock 
banks being established within sixty-five miles of London, it necessarily 
gave rise to banks occupying particular districts in the country. The ad- 
vantages which are alleged to belong to the district system are the follow- 
ing : — That the bank will be better adapted to the wants and habits of the 
people ; that a local feeling will be excited in its favor, hence the inhabit- 
ants of the district will take shares, and the occurrence of runs upon the 
bank will be less probable ; that a better system of management may be 
expected, as it can more easily be governed, and will be more under con- 
trol ; that a panic in the district will not affect the other parts of the 
country, and hence supplies may be more easily obtained ; that banks will 
be of a moderate size, and hence will be attended with the advantages 
arising from numerous banks acting as checks upon each other, instead 
of a few large banks who may combine for objects injurious to the nation ; 

110 



Joint- Stock Banks. 

and that as each bank will have an agent in London, the bills they draw 
will thus have two parties as securities, and the public will have a pledge 
that there is no excessive issue in the form of kites or accommodation 
bills. On the other hand, it may be contended, that in Scotland the large 
metropolitan banks which have branches extended throughout the coun- 
try, have generally been more successful than the provincial or district 
banks ; that there is a greater security to the public for the notes or de- 
posits ; that advances are not so likely to be made to speculative parties 
merely on account of their local influence ; that the capital raised in one 
part of the country can be employed in another ; that the transmission of 
money from one part of the country to another is more rapid and direct ; 
that the establishment of the bank, being on a larger scale, you have a 
superior class of directors, and can command the services of higher talents 
in those who are employed as officers. 

It does not appear that these two systems are necessarily at variance 
with each other. County or district banks have no doubt many advan- 
tages, but they do not seem to supersede banks on a larger scale. 

VI. Joint-stock banks have an annual meeting of shareholders, to whom 
is usually exhibited a balance-sheet showing the assets and liabilities of 
the bank. 

All banks do not exhibit a balance-sheet. The practice is said to be 
open to the following objections : — 

1. That it is not a fair criterion by which you can form any judgment 
of the real condition of the bank. You might see that the bank had a 
certain amount of securities, or had advanced a certain sum upon loans ; 
but whether those securities were available, or whether those loans could 
suddenly be called up, are points upon which the balance-sheet could give 
no information. The Agricultural and Commercial Bank of Ireland pub- 
lished a very satisfactory balance-sheet a few weeks only before they 
stopped payment. 

2. It lays the bank open to attacks from its rivals or opponents. The 
balance-sheet will show in what way the funds of the bank are employed, 
but it will not state the reasons why they are so employed. The oppo- 
nents of the bank may attack every item of the balance-sheet, and the 
directors may not be able to repel those attacks without a breach of con- 
fidence that would be injurious to the establishment. Suppose, for in- 
stance, the balance-sheet should show that the bank had advanced a few 
thousand pounds upon mortgage. This might be justly considered as a 
departure from the sound principles of banking; yet it might in this case 
be justified by some peculiar circumstances, which, nevertheless, the di- 
rectors could not publish without serious injury to the parties concerned. 
The production of a balance-sheet is advocated upon the ground that it 
would enable the shareholders to judge of the ability and prudence of the 
directors. But how can they do this without knowing the reasons by 
which the directors are influenced in their decisions ? 

3. It causes a great deal of speculation in the shares. The sharehold- 
ers and the public would form their opinions of the bank from the state- 
ments in the balance-sheet ; and according to these opinions the price of 
the shares would fluctuate in the market. Suppose it were seen that the 

111 



A Treatise on Banking, 

bank had invested a large portion of its funds in government securities, 
and it was known that during the year the price of those securities had 
experienced a considerable fall, would not the bank shares immediately 
fall too ? Again, suppose at the end of a year like 1836, it should appear 
that the bank held a considerable amount of overdue bills, the apprehen- 
sion of loss would cause the bank shares to fall ; soon afterwards these 
bills might be paid, and then the shares would rise again. Thus, the pub- 
lication of balance-sheets would keep the prices of shares in perpetual 
fluctuation, and furnish a most fruitful source of speculation and gam- 
bling. 

4. It is perfectly inefficient as a protection against fraud. The balance- 
sheet, it seems, is to be a check upon the directors, and yet the directors 
themselves are to prepare the balance-sheet. They must be stupid knaves 
indeed, if they produce such a balance-sheet as shall expose their own 
knavery. Besides, the balance-sheet merely shows the state of the bank 
on one day in the year. Would it not be easy to put the bank on that 
day in such a condition as would give satisfaction to the shareholders ? 

VII. At the annual meeting, the directors announce the amount of the 
profits and the mode of their distribution. 

The first appropriation of the profits is, to pay to the shareholders a 
dividend on the capital. But all the profits are not usually thus appro- 
priated ; a certain portion is generally retained as a rest, or surplus fund, 
or, as it is sometimes called, a guarantee fund. This last title has led to 
an erroneous impression with regard to the nature and purposes of this 
fund. It is not designed as a guarantee to the depositers for the amount 
of their deposits, — these are guaranteed by the paid-up capital and the lia- 
bility of the shareholders, — but as a guarantee to the shareholders for the 
uniformity of their dividends. Should the profits in any one year fall be- 
low the sum necessary to pay the usual dividend, the deficiency may 
then be taken from the surplus or guarantee fund. The amount of this 
fund, therefore, will be regulated by the amount of the transactions, and 
the consequent danger of loss. But it sometimes happens, that, after 
paying a liberal dividend, the surplus fund accumulates far beyond the 
sum necessary for the above purpose. In this case a portion of the fund 
may be employed either in still further increasing the dividend, or it may 
be distributed to the shareholders in the form of bonuses, or it may 
be added to the capital. The course to be adopted must depend upon 
circumstances. When the capital is small, h. will probably be best to 
make an addition from the surplus fund ; but when the capital is suffi- 
ciently large, the best way will be to give an occasional bonus to the pro- 
prietors. This is usually better than increasing the dividend ; for if the 
dividend be once increased, the same rate of dividend will always be ex- 
pected ; and it is better not to make any advance, unless there is good 
reason to believe that the same rate will always be mainlined. 

When urging the establishment of a surplus fund, we are met with the 
remark, that we are not bound to do any thing for posterity, inasmuch as 
posterity have done nothing for us. We recollect meeting with this joke 
many years ago, we think in " Joe Miller." As it is so freauently re- 
peated, we presume it is thought to be witty. We profess not to be a 

112 



Joint- Stock Banks. 

nidge of wittif'sm^ As a piece of reasoning it seems very unsound. To 
deny ourselves present gratifications in order to make provision for the 
future, is one of the most important lessons that reason teaches to man. 
Nor is it for posterity . in the present case, that the provision is made. All 
bank proprietors should wish that it may be so ; but it is very probable 
that within their own lifetime some untoward events may occur that will 
require a portion of the reserved fund to keep up the ordinary dividend. 

Those persons are under a mistake who object to a reserved or surplus 
fund on the ground that it takes away the profits from the existing share- 
holders, and gives them to the future shareholders. This is not the fact. 
An existing shareholder who keeps his shares until the fund is in some 
way distributed, receives of course his portion of the fund. But an exist- 
ing shareholder who sells out his shares before the fund is distributed, re- 
ceives the value of his portion of the fund in the price of his shares. The 
amount of the surplus fund will influence the market-value of the shares. 
In proof of this, we may observe that after a bank has declared a bonus, 
the market-price of the shares usually falls, as in fact, cceteris paribus, 
it ought to do. 

We consider it of high importance that a bank should maintain an am- 
ple surplus fund. Without such a fund, the dividends will fluctuate very 
widely, and sometimes there may be no dividend at all, even though upon 
a series of years the bank may have been very successful. Even if it is 
known that a bank has met with losses, its credit is not so much affected 
when it has an ample reserved fund to fall back upon. And besides the 
ordinary losses in the way of business, a bank will sometimes, in a season 
of pressure, be called upon to sustain loss by the realization of securities, 
and it is very convenient to have a surplus fund sufficiently ample to bear 
all these contingencies. Such a fund, too, has a moral effect in strength- 
ening the reputation of the bank in public estimation. It is regarded as 
an indication that its affairs are governed by a wise and prudent adminis- 
tration. 

It will assist us in forming a correct judgment as to the principles on 
which joint-stock banks ought to be administered, if we take a view of 
those banks that have fallen, and notice the causes to which their failure 
may be assigned. In investigating these causes, we shall find that the 
disasters which have befallen joint-stock banks have arisen, not from any 
unsoundness in the principles of joint-stock banking, but purely from mal- 
administration. It was predicted by their opponents that they would be 
ruined by the excessive issue of their notes : but the banks that have 
failed have been chiefly those that did not issue notes. It was stated they 
would be ruined by cariying on an extensive business with a small capital ; 
but among the banks that have stopped have been some of the largest 
capital. It was supposed they would be ruined by unprincipled men get- 
ting to be directors, who, having no property of their own, would care 
little about squandering the property of others. But the fallen banks are 
chiefly those which were governed by honorable men ; and the greatest 
sufferers have been the directors. Nor can it be said that the joint-stock 
banks have made their losses by engaging in speculations unconnected 
with banking. Private bankers have done so. But joint-stock banks are 

113 



A Treatise on Banking. 

confined by their deeds of settlement to the business of banking. Nor has 
it appeared — except, perhaps, in the Isle of Man Bank — that they have 
violated their deeds in this respect. To what, then, must we ascribe the 
failure of so many joint-stock banks ? We reply, To maladministration ; 
or, in other words, to bad management. And this leads us to inquire, In 
what way has this mal-administration been exemplified ? What are those 
erroneous principles that have led to these fatal results ? Without at- 
tempting to enumerate them all, we will endeavour to specify a few of 
the most prominent. 

I. Taking the unsound business of other banks. 

One cause of the rapid extension of joint-stock banks in 1836, was the 
" merging " of numerous private banks. I obtained from the managers 
the names of these private banks, which were printed as an appendix to 
the " History of Banking in America," published in 1837. This list was 
afterwards extended, and inserted in the Bankers' Magazine for 1844. 
Thus it appears that one hundred and thirty-eight private banking estab- 
lishments have merged in joint-stock banks. Some of the private banks 
sold their business after the joint-stock banks had come into operation. 
Others formed a joint-stock bank upon the private bank, the senior partner 
often becoming a director, and the junior partner the manager, of the 
new bank. 

In by far the majority of cases, these unions, or " merges," were ad- 
vantageous to both parties. The private bankers obtained the value of 
the business they had surrendered, and an interest in the future prosperity 
of the bank they had joined. On the other hand, the new joint-stock bank 
acquired a business already formed, and also obtained the advantage of 
the practical knowledge and superintendence of experienced bankers. 

But in some instances the bargain was a disastrous one for the joint- 
stock bank. The bad and overdrawn accounts were taken without due 
examination, and soon afterwards occasioned considerable loss. The loss 
of the purchase-money was generally by far the smaller loss of the two. 
A joint-stock bank in the West of England purchased a private bank in a 
country town for a large sum, and took the overdrawn accounts without a 
guarantee. These accounts were considered good at the time, but a few 
years afterwards the parties failed, and the joint-stock bank lost consider- 
ably. A joint-stock bank gave to the Northern and Central Bank the sum 
of £ 6,500 for their business at Leeds, after they had stopped. The ac- 
counts they took over were afterwards the occasion of great loss. The 
Isle of Wight Joint-stock Bank was formed upon a private bank, but a few 
months only had elapsed when they found they were insolvent from the 
losses that would arise from the bad accounts they had accepted. They 
immediately determined to wind up, and transfer their business to the 
National Provincial Bank of England. Other instances might be adduced 
of joint-stock banks having been founded on private banks which are now 
supposed to have been, at the time, in a state of insolvency. 

II. Some banks have sustained losses by making advances on dead 
security. 

Instead of the word " some," we think we might use the word " all " ; 
for among the banks that have failed we doubt if we could find one that 

114 



Joint- Stock Banks. 

had not sinned in this respect. But the greatest sinners were those banks 
that were established in places of the greatest trade. All the banks at 
Newcastle advanced money on collieries, and also on other public works. 
The banks of Manchester made advances on mills and manufactories, as 
did also some of the banks at Leeds. These advances were attended with 
several evil effects. In the first place, there was a lock-up of capital, 
which restrained the operations of the bank. To relieve themselves from 
this restriction, they took bills for their loans, and re-discounted them in 
the London money market. " The facilities thus obtained induced them to 
extend this system of advance. Bills were perpetually renewed, and per- 
petually re-discounted. At last a pressure came, and the renewed bills 
could not be re-discounted. The bank could not take up the old bills 
that were returned, and consequently stopped payment. Sometimes, too, 
the bank tried to relieve itself from this pressure by increasing its drafts 
on its London agent. It has for a long time been the practice in Lanca- 
shire to pay for cotton with a three months' banker's bill. Banks in diffi- 
culties avail themselves of this practice to make all their advances by 
drafts on London, instead of cash. The Bank of Manchester had at one 
time an enormous circulation of this kind. 

Another effect was, that, however good the security might be at the time 
the advance was made, when a change took place in the state of trade, its 
value fell much below the amount of the advance ; and in some cases it 
could not be sold at any price. But the evil did not stop here. As the 
property given as security would have been worth nothing if not worked, 
the bank was induced to make further advances to carry on the works on 
their own account. A colliery, if not kept in operation, soon gets out of 
order; and it will then require a considerable sum to set it at work again. 
Hence some of the collieries at Newcastle were worked by the banks ; and 
mills in the neighbourhood of Manchester were carried on in the same 
way. The plan, however, does not often succeed. It is generally throw- 
ing good money after bad. The ultimate loss is usually increased. 
We may just observe in passing, that the banks in the East Indies get in- 
volved in the same way, through making advances on indigo works. 
These works are of no value except kept in operation ; and hence it has 
occurred that a bank which has made an advance, is compelled to carry 
on the works to keep up the value of its security. To show that a bank 
governed by the strictest rules may sometimes be drawn into transactions 
of this kind, it may be observed that at the present time an iron concern 
in Wales is said to be carried on by the Bank of England. It belonged 
to the Governor and Company of the Mines Royal. The bank made an 
advance on mortgage to this corporation during the pressure of 1847, and 
now takes the profits of the works. Some joint-stock banks have made 
advances upon buildings. This has occurred chiefly in places where 
there has been an increasing population. A few years ago a joint-stock 
bank in a town of fashionable resort, advanced large sums to builders 
upon the security of the houses they were erecting. The houses did not 
let ; they could not be sold for any thing like the cost price ; the builders 
were ruined, and the loss fell upon the bank. The bank had recourse 
to the expedient of re-discounting the builders' bills ; but after a while it 

115 



A Treatise on Banking. 

was compelled to stop payment. In agricultural districts, banks have 
sometimes made considerable advances to farmers and graziers. Indeed, 
it is almost a universal practice to do so at some seasons of the year. 
These advances are not individually of large amount, and are not usually 
attended with much loss, — not with any thing like the losses incurred by 
advances on collieries, mills, and houses. But it is a lock-up of capital 
until the year comes round. And when the system has been carried to 
too great an extent, the bank has become embarrassed through the want 
of funds. 

III. Some banks have lost large amounts through advances made by 
way of loan or discounts to men engaged in speculative undertakings. 

Two of the banks that stopped at Newcastle-upon-Tyne sustained great 
losses through advances to corn-merchants. Speculations in corn are 
usually carried on more by bills than by loan. A merchant buys a quan- 
tity of corn, and places it in the hands of a factor, and draws* bills for 
something under the market value, leaving the factor a margin to guard 
against loss. He gets these bills discounted, buys more corn, which he 
also places in the hands of his factor, and then draws fresh bills. This 
second batch of bills he also gets discounted, and buys more corn ; and 
thus he goes on in the same course. Now if he thinks the market will 
rise (as all speculators do), he will not allow his factor to sell the corn ; 
but when the first bills fall due he will renew them, and with the produce 
of the new bills, when discounted, he will pay the old ones. It is thus that 
a large speculation may be carried on with a small amount of capital (and 
that may be borrowed from the bank), and all the speculation is kept 
afloat by bills. These bills are always for large amounts, and when the 
parties fail the losses are usually heavy. The failures in the corn trade 
in 1847 fell heavily on the banking and moneyed interests. It was the 
stoppage of Messrs. Lesley, Alexander, & Co., the corn factors, that 
caused the stoppage of Messrs. Sanderson & Co., the bill-brokers. 

Wool is another " heavy article," as it is called : that is, it costs a great 
deal of money, and the bills are usually for large amounts. Occasionally 
there is much speculation in this article. A joint-stock bank that failed 
in Yorkshire is said to have lost large sums by persons engaged in this 
trade. 

Builders are generally a speculative class. Banks that advance money 
to parties engaged in this trade have usually to take possession of the 
buildings. We have already noticed an instance of this in the conduct of 
a joint-stock bank. 

People who speculate in railway and other companies are dangerous 
customers to a bank. A joint-stock bank that failed at Leeds is said to 
have lost considerably by advances to share-brokers and others, upon the 
security of their shares. 

It may be remarked, that it is generally bad policy in a bank to make 
a very large permanent advance to any one customer. The word 
M large " is a relative term, and must be undertsood with reference to the 
extent of business that the customer is carrying on, and to the means of 
the bank. It is not the business of bankers to supply their customers 
with capital to carry on their trade. But it is their business to make tem- 

116 



Joint- Stock Banks. 

porary advances, and these advances may sometimes be large. In such 
cases, the banker should have a kind of security, that shall not only se- 
cure the debt, but shall prevent its becoming permanent. Almost every 
bank that has failed can point to some one, two, or three large accounts 
to which it mainly ascribes its failure. The temporary stoppage of the 
Royal Bank of Liverpool is attributed to an advance of this sort. 

But the worst form of illegitimate advance is that which is made by a 
bank to one of its own directors. Some of the banks at Manchester 
sinned grievously in this respect. 

A bank that is known to act imprudently in making large advances, 
will occasion a suspicion that its smaller advances are made with, at 
least, equal imprudence. A large number of imprudent small transac- 
tions may be as fatal to a bank as a smaller number of a larger amount. 
A sum which appears small as a loan, will appear large as a loss. A man- 
ager who accustoms himself to examine all the circumstances connected 
with the small bills he discounts, will acquire a habit of investigation that 
will guide him with safety in dealing with large transactions. But if he 
get into a laxity of manner in regard to small amounts, he will ultimately 
deal less carefully with large sums, and be in danger of making great 
losses. In every case the rules of sound banking should be strictly applied. 

IV. Some banks have become involved in difficulties through a general 
want of system and discipline in conducting its affairs. This laxity usu- 
ally shows itself in two ways, — the absence of a good system of book- 
keeping, and the want of a proper control over its branches. 

We could not adduce a more striking illustration of this observation 
than has been furnished in the history of the Agricultural and Commercial 
Bank of Ireland, as related before a Committee of the House of Commons 
in the year 1837. The following are extracts from this evidence. The 
books at the head office had not been posted for four months. There 
were no stock books, showing the amount each shareholder had paid on 
his share. There were no books showing the amount of the circulation. 
An auditor states : " They showed us no general account ; their books 
were in a perfect chaos." They had no account at the head office by 
which they could check any transaction at the branches. Bills were sent 
away to be re-discounted without any entry of them being made in the 
bank books. At the branches there was no regular system of accounts. 
At no one branch was there a system of accounts that formed an ade- 
quate check upon the amount of notes in circulation ; " and from one 
branch we were told that returns had not been made to the head-office for 
fourteen months, and from another for six weeks, and there was no ques- 
tion about it from the head office." (It is to be feared that some of the 
English country banks are too neglectful in regard to book-keeping. See 
the case of the Honiton Bank, in Burgess's Circular to Bankers, Feb- 
ruary 2, 1849.) 

We will not intimate that any thing like this has ever existed in a joint- 
stock bank in England. We never heard that any one has had any diffi- 
culty in making out a statement of its affairs. With some banks, how- 
ever, there has been a laxity in regard to the government of their 
branches. The system of inspection was not well understood ; the re- 

117 



A Treatise on Banking. 

turns from the branch were not so ample as they should have been ; ana 
the orders of the head office were not rigorously enforced. We could 
mention the names of several fallen banks that, lost very considerably by 
their branches. In some cases the banks had opened branches in towns 
that required an amount of capital disproportionate to the means of the 
bank, and their administration had been intrusted to parties who had 
neither banking nor local knowledge. 

A good system of book-keeping cannot be too highly valued. Its ob- 
ject is not merely to secure accuracy of accounts between the bank and 
its customers. A further object is to classify and arrange all the transac- 
tions in such a way as easily to produce a weekly balance-sheet, showing 
the actual condition of the bank. Nor must it be supposed that such ab- 
stracts or balance-sheets are intended merely for the use of the directors. 
They are of the utmost use to the manager, and should be the subject of 
his constant study. A manager who, day after day, attends only to indi- 
vidual transactions, and that, too, possibly in a state of mental excitement, 
may involve his bank in difficulty, even though each transaction may, 
upon its own ground, be perfectly justifiable, unless he attends to those 
summaries and classifications of his transactions which are presented in 
the weekly balance-sheet. He will there see on one side the means of the 
bank, and on the other the way in which his funds are employed. He 
will notice if his loans, or overdrawn accounts, or past-due bills, are un- 
duly increased. If a good system of book-keeping does not prevent a 
manager from going wrong, it will prevent his going wrong without know- 
ing it. If he act unwisely, his balance-sheet will stare him in the face 
and remind him of his faults. 

It is a great defect not to take an accurate estimate of the losses every 
half year before striking the balance of profit and loss. It is clear, that 
common sense and common honesty require that the loss should be taken 
into account as well as the profit. Yet some of the banks that failed 
went on, year after year, exhibiting a balance-sheet to their shareholders 
showing a respectable profit, which enabled the directors to declare a fair 
dividend, and to make an addition to the reserved fund. While the an- 
nual balance-sheets thus showed a steady increase of profit, the bad debts 
had actually eaten up the whole of the capital. 

Another defect is, not to have an account in the general ledger show- 
ing the amount of bills re-issued or re-discounted. The amount of these 
bills not due should appear on both sides of the account, — on one side as 
a liability, and on the other as an asset. For want of doing so, some 
banks have not been able to ascertain easily what amount of bills they 
have under re-discount. But it is important to know this ; for it may be 
expected that, during a season of pressure, no small portion of these bills 
will be returned unpaid, and the bank must find funds to take up its in- 
dorsements. If they fail to do this, it amounts to a stoppage of pay- 
ments. In fact, the amount of such bills suddenly returned has in some 
cases been the immediate cause of a bank stopping payment. 

We have no horror of numerous branches. When we see that in 
Scotland the largest and most prosperous banks have each a large num- 
ber of branches, we are led to believe that branches are not attended 

118 * 



Joint-Stock Banks. 

with any dangers which cannot be overcome by wise administration. At 
the same time, we are ready to admit that numerous branches require a 
peculiar mode of government, and a rigid system of discipline. The 
chief officer of such a bank should be a good banker, and something 
more. He must be a good administrator ; that is, skilled in the adminis- 
trative department of good government. 

In the first place, each branch must have a good system of book-keep- 
ing, and the system must be uniform at every branch. Secondly, Care 
should be taken to appoint efficient officers. Thirdly, A code of laws should 
be drawn up, and the branch manager should be distinctly informed as to 
the extent to which he may exercise his discretion, and what cases must 
be referred for the consideration of the directors. Fourthly, Weekly re- 
turns must be made to the head office of all the transactions, and a half- 
yearly balance-sheet attended with full supplementary details. Fifthly, 
Special reports should be occasionally required, as special circumstances 
may occur, either with reference to the branches generally, or with refer- 
ence to a branch individually. Sixthly, An inspector should be appoint- 
ed for the purpose of visiting the branches. His duties will be to explain 
the instructions of the directors, and to see that they are properly ob- 
served ; to maintain a uniform system of transacting business at all the 
branches ; to instruct the officers of the branch in their duties when ne- 
cessary, and to communicate the knowledge he has acquired in visiting 
the other branches ; to answer any difficult or knotty questions that may 
be proposed to him by the manager, and to consult with the manager as 
to the best means of promoting the interests of the branch ; to observe the 
talents and capabilities of the several officers, and to recommend for pro- 
motion any who seem to have qualities that might be usefully employed 
in a higher department in the bank. In large banks there are usually 
several inspectors. (We shall hereafter notice in detail the mode of con- 
ducting business in the Provincial Bank of Ireland, as an illustration of the 
above remarks.) 

Branches should always be kept in strict subordination to the head 
office. Prompt obedience to orders is a duty that must be rigidly en- 
forced. The chairman of the Northern and Central Bank stated to the 
Parliamentary committee, that at some of the branches where the heaviest 
losses had occurred, the managers had not obeyed the orders they had 
received from the directors. Similar accusations were made against some 
of the branch managers of the Commercial Bank of England. It is quite 
impossible for any bank to be well administered as a whole, if every 
branch is allowed to exercise an independent authority. Upon this 
ground, some parties object altogether to the appointment of local direct- 
ors at the branches. A local board, consisting of the branch directors 
and the manager, are more likely than the manager alone to assume in- 
dependent authority, to postpone carrying out the directions they may re- 
ceive from head quarters, and to take upon themselves the responsibility 
of acting somewhat at variance with the strict letter of their instructions. 
And although local directors may sometimes be useful in extending the 
connections of the bank, or in aiding the managers with information or 
advice, yet, for the above or other reasons, they are now in England but 
I 119 



A Treatise on Banking. 

very seldom appointed. The branch is under the sole care of a manager. 
The general manager of the bank is not merely the manager of the head 
office, but has authority also over all the branches. Whenever neces- 
sary or expedient, he issues circular letters of instruction to the branch 
managers, and these instructions the branch managers are expected to 
obey. 

V. Some banks have been unfortunate in consequence of having made 
no provision to meet contingencies. 

This class of banks has not fallen into any of the practices that we have 
enumerated. They have not, on the whole, been badly managed, but 
they have traded to the full amount of their means, and have kept no re- 
serve, either in government stock, exchequer bills, or bills of exchange, to 
meet those contingencies to which all banks are liable. One bank of this 
class had, during the railway speculation, received from some of these 
companies a large amount of deposits. A portion of these deposits was 
lodged, as its agent, with another bank. That bank stopped. This bank 
was, consequently, unable to pay back the deposits to the railway compa- 
nies. From this circumstance, and the known connection between the 
two banks having damaged its credit, it was compelled also to stop pay- 
ment. Another bank had but a small capital, but for a number of years 
it was exceedingly well managed. In 1847 it had discounted, and again 
re-discounted, a large amount of bills on a first-rate London house that 
failed. The London house afterwards paid 20s. in the pound. But the 
directors concluded from this circumstance that a bank with a small capi- 
tal was not in a condition to bear a large loss, and they resolved to wind 
up the concern. After sustaining the losses and expenses of winding up 
(and in such a case some losses necessarily occur), the bank realized 
nearly the whole of its paid-up capital. We doubt not that some of the 
other banks that have wound up their affairs have done so from causes 
similar to those we have described. 

We consider that this head of our inquiry is not less instructive than the 
four by which it was preceded. They will teach us the vices we ought 
to avoid ; this will teach us the virtues we ought to cultivate. The lessons 
we here gather are, that we ought not only to avoid all mismanagement, 
but we ought also to provide for those contingencies to which, even with 
good management, we are exposed. We ought to raise our capital in 
proportion to our business, or else keep down our business to a level with 
< >ur capital ; we ought to have a surplus fund adequate to meet any 
unforeseen loss ; we ought to have a reserve of convertible securi- 
ties ready to meet contingent evils ; and, finally, we ought always to 
keep our bank in such a condition, that, even if not successful, we shall 
still be in a condition to wind up our affairs without inconvenience to the 
public. 

VI. We may observe, that these erroneous principles of administration 
have sometimes been the result of a defect in the constitution of the bank, 
of the appointment of incompetent persons, or of an unwise distribution of 
the administrative functions. 

Joint-stock banking did not grow up gradually in England as in Scot- 
land. On the introduction of this system into England, the directors were 

120 



Joint- Stock Banks. 

necessarily unacquainted with the practical operations of banking.* For 
all the practice and experience were confined to the private bankers, 
whom the new system was intended to subvert. In some places there 
was a prejudice against directors who were in business. Hence, officers 
in the army, barristers, solicitors, medical men, retired tradesmen, and 
country gentlemen, were considered as the most eligible directors. These 
boards of directors, all of whom were unacquainted with banking, and 
some of whom were destitute of business habits, had to encounter difficul- 
ties which would have tried the most experienced bankers. 

The want of experience in a board of directors did not, however, pro- 
duce any dangerous consequences when they appointed an efficient mana- 
ger. He prudently advised and instructed them. They gradually in- 
creased their knowledge, adopted his principles, and were guided by his 
counsels. By their daily intercourse with him, by their own reflections, 
by the direction given to their thoughts, and by the experience they ac- 
quired, they became in a few years as conversant with their duties as the 
manager himself. We believe this was almost uniformly the case with 
those joint-stock banks that were formed within five or six years after they 
were allowed to be established in England. As a proof that such was the 
case, it may be stated that the greater portion of the banks formed during 
that period have, at the present moment, the same managers they had at 
their commencement. 

But, after joint-stock banks were started as matters of speculation, they 
increased more rapidly than efficient managers could be found. The 
new banks naturally enough looked to Scotland. But the Scotch banks 
had the sagacity to raise the salaries of their principal officers, to prevent 
their emigration to England. In some cases, those Scotchmen who were 
appointed managers of English banks, had never held office in a bank be- 
fore, or else it was an office so inferior that all they knew about banking 
was merely the routine of the office. Wherever efficient managers were 
appointed, whether English or Scotch, the same effects were produced as 
in the former cases. The inexperienced directors acquired the knowledge 
and experience necessary to the discharge of their duties, and the banks 
prospered. But sometimes the case was reversed. The manager was 
inefficient and the directors inexperienced, and then the effects were dis- 
astrous. 

In some cases the manager labored under an inconvenience from being 
taken from a lower social position. Not a few of the managers were 
previously bankers' clerks ; and the appointment to the office of bank 
manager did not, in England (as it does in Scotland and in Ireland), raise 
him to the same social position as a banker. This was injurious to the 
bank in several ways. It lessened his influence with his directors. From 

* The chairman of the Northern and Central Bank gave the following answers to a 
Committee of the House of Commons : — 

" Is there any one of your colleagues in the direction of the bank that had previous 
experience in banking business ? — I do not think there was one. 

" Had the directors of the joint-stock banks about you many of them had previous 
banking experience? — I do not recollect one." — Committee on Joint-Stock Banks, 
1837. 

121 



A Treatise on Banking. 

me days of Solomon to the present time, the degree of deference paid to 
even good advice has depended upon the social rank of the party who 
offered it : " Wisdom is better than strength ; nevertheless the poor man's 
wisdom is despised, and his words are not heard." (Eccles. viii. 16.) 
The public, too, had been so long accustomed to private banking, that, 
seeing the manager paid by a salary, they could not bring their minds to 
view him as the banker, but considered him as holding an office analo- 
gous to that of chief clerk in a private bank. It may be feared that in 
some banks the directors took the same view, and thought that the influ- 
ence and the salaries of the two offices ought to correspond. These im- 
pressions have now passed away. 

In some cases the manager was superseded in his functions by the ap- 
pointment of managing directors. The manager was a man of banking 
knowledge and experience, but he had placed over him a couple of manag- 
ing directors who had neither knowledge nor experience. Consequently, 
his voice was never heard in the board-room, and, with the name of 
manager, he acted only in the capacity of a chief clerk. The manager 
was thus deprived of the opportunity of discharging the most impor- 
tant of his functions, — that of giving advice to the directors, — and 
was required to confine his attention to the more easy duty of obedi- 
ence. 

In other cases the managing directors and the manager formed a secret 
committee, who alone were acquainted with the actual condition of the 
bank. The directors of the Bank of Manchester stated, in their first re- 
port, that u two of their body, who are out of business, alone have access 
to the accounts, and are authorized to advise with the manager, when re- 
quisite, on the current transactions of the bank. At the same time, each 
of the other directors engaged, individually, to refrain entirely from in- 
specting any of the customers' bills' or accounts ; thus combining all the 
secrecy of a private bank with the advantages of a public institution." 
The Bank of Manchester had at that time the largest paid-up capital of 
any joint-stock bank in England. Three of its directors were examined 
before the Bank Charter Committee, in the year 1832. They presented 
to the committee a list of twenty-three joint-stock banks then formed, and 
strongly urged that measures should be adopted to require from them an 
adequate amount of paid-up capital. It is somewhat remarkable, that, out 
of these twenty-three banks, the only one that has stopped payment is the 
Bank of Manchester. Another has ceased to exist, but it was by a trans- 
fer of its business. 

In some cases a bank has been ruined by its manager ; in others, by 
the manager and the managing directors conjointly ; in others, by the 
managing directors without the manager ; and in others, by one, two, or 
three directors, who, though not formally appointed managing directors, 
have, by their influence with the board, virtually monopolized that office, 
and discharged its functions. It may be questioned whether any case has 
occurred in England of a bank being ruined by the acts of its whole 
board, where all the directors were honest and intelligent men, and each 
was accustomed to think and judge for himself. 

VII. We may observe, that sometimes joint-stock banks have been led 

122 



Joint- Stock Banks. 

into erroneous principles of administration by the proceedings of the pro- 
prietors. / 

The constitution of joint-stock banks appears theoretically absurd. 
The manager, — the banker, — who is presumed to have some knowledge 
and experience in banking, is placed under the command of a board of 
directors whose knowledge and experience are supposed to be inferior to 
his own. These directors are again placed under the control and instruc- 
tion of a body of proprietors whose knowledge of banking is much less 
than that of the directors. Practically, however, the system works well. 
But when an attempt is made to carry out the theory, the effects are in- 
jurious ; and some joint-stock banks have fallen into danger through the 
operations being too much regulated by the proceedings of the pro- 
prietors. 

Sometimes the directors have been influenced by the applauses of the 
shareholders. 

It is natural to all shareholders to wish for large dividends upon the 
capital they have invested. Hence they applaud most loudly those direc- 
tors who contrive to declare the highest dividends, to make the largest bo- 
nuses, to keep up the shares at the highest premiums in the market, and 
then to distribute more shares at par. The directors, knowing these to be 
the feelings of the shareholders, very naturally attempt to gratify them. But 
those transactions that yield a large immediate profit, are either attended 
with a risk of loss or a lock-up of capital. But the profit is immediate, 
the danger is remote. With the applauses of the shareholders ringing in 
their ears, the directors become too giddy for reflection, and recklessly 
engage in a course of action that ends in ruin. This evil is increased 
when there are two joint-stock banks of about equal strength in the same 
place. The spirit of rivalry is natural to man. The competition between 
the two boards of directors is not which bank shall be governed with the 
greatest prudence, and with the strictest regard to sound banking princi- 
ples, but which shall produce the most glowing reports, which shall de- 
clare the largest dividends, and which shall keep up its shares at the high- 
est price in the market. A strong competition is carried on, which ends 
in the destruction of one or both of the rival banks. Such feelings are 
said to have prevailed at Manchester ; and at that place several boards of 
directors were presented with services of plate, by their respective share- 
holders, within a short time of the stoppage of their banks. 

Sometimes directors are induced to act unwisely from the censures of 
their shareholders. 

Every one. who knows any thing of banking must know that it cannot 
be carried on without occasional losses. A bank that is so conducted as 
never to make a loss, will seldom ma^ke much profit. And sometimes 
these losses will be so great as to absorb a large portion of the profits of 
the year. The object of having a surplus fund is to provide for these 
contingencies, so that the usual dividend may be maintained. But when 
an occasion arises for making use of a portion of this fund, there is often 
what is called " a stormy meeting," and the shareholders walk away 
sulky and dissatisfied. This produces a bad effect on the minds of the 
directors. It is a great mistake to suppose that boards of directors are in- 

123 



A Treatise on Banking. 

different to the applauses or censures of their shareholders. As a general 
rule, the fact is lamentably the reverse. In some cases they have had 
so much dread of " the general meeting " that they could not muster 
courage enough to make honest reports. Had they done so in the first 
instance, their banks might have been saved from destruction. 

Sometimes directors are in danger of being led astray by the admoni- 
tions and instructions of their shareholders. 

A very prudent class of proprietors exhort the directors to practise the 
strictest economy. When rightly understood, this exhortation is worthy 
of the rounds of applause with which it is usually attended. But it is 
liable to be misunderstood. In banking, as in housewifery, the lowest- 
priced article is not always the cheapest. The largest portion of the ex- 
penditure of a bank consists of salaries. Hence an exhortation to econo- 
my amounts to, " Keep down the salaries of your officers " ; and as the 
manager has the largest salary, he will most likely be the heaviest suf- 
ferer. We believe that if the suggestion were made in these terms, it 
would receive no support from any body of shareholders. Were it cus- 
tomary to announce to the proprietors the advances made in the salaries 
of the managers, we think the announcement would be received with the 
same feelings as were manifested in the following instance. At the elev- 
enth annual meeting of the proprietors of a bank in one of the northern 
counties, held on the 5th of February, 1846, " the chairman informed the 
meeting that, appreciating highly the services of the manager, and the 
prosperity of the bank fully justifying them in doing so, the directors had 
raised his salary to £ 1,500 a year ; at which the proprietors present ex- 
pressed their hearty concurrence. And it was recommended to the di- 
rectors, by the proprietors present, still further to augment the manager's 
salary, with the increasing business and prosperity of the bank." At that 
time the paid-up capital of the bank was £ 260,450. In the " Banking 
Almanac for 1849," this banking is stated to have a capital of 
£ 300,000, and a reserved fund of £ 30,000. 

The following is an extract from the sixth report of another joint-stock 
bank : — 

" The manager having claimed for his nominees the 1 ,000 shares at par 
to which they were entitled by his agreement when originally engaged, 
the same have been issued to them, which increases the number of paid- 
up shares, entitled to participate in the present dividend, to 32,080." 

A more mischievous recommendation, when thus understood, can 
hardly be conceived. Next to having a dishonest manager, the greatest 
evil is to have one that is badly paid. If he is known to be poor, his ad- 
vice will have less weight in the board-room ; the directors individually 
will treat him with less respect ; his wealthy customers will not disclose to 
him their private affairs ; the needy class, when refused discount, will in- 
sult him by threatening to complain to the directors ; and his inferior offi- 
cers will be less prompt in their obedience. But worse than all this will 
be the effect produced upon his own mind. He will not be, and he cannot 
be, so efficient a manager when badly paid, as he would be if he received 
a liberal remuneration. It is the besetting sin of men of business, that 
they never pay attention to mind, though among no class are mental phe- 

124 



Joint- Stock Banks. 

nomena more strikingly exhibited. The amount of his salary is the only 
tangible means by which a manager can judge how far his services and 
his character are appreciated. It is not the money alone, but the feelings 
of which the money is an indication, that produces an effect on the mind. 
It is a law of our nature, that the kindness, liberality, and generosity of 
others will produce corresponding feelings in ourselves. And it is an- 
other law of our nature, that when the mind is under the influence of such 
feelings, it is capable of intellectual efforts of a higher order. But we 
forget ; we were writing about pounds, shillings, and pence, and our pen 
has darted off into philosophy. We will now return. 

Sometimes the shareholders fly at higher game, and canvass the sala- 
ries of the directors. Such discussions are always unpleasant, as they are 
carried on in the presence of the parties interested. Among all the 
charges brought against the directors and managers of banks that have 
failed, we have never met with the accusation that they received exces- 
sive salaries. We are tempted to fancy, that, had their salaries been 
higher, the banks might not have failed. As far as salary is concerned, 
they certainly would have had a greater interest in preventing the failure. 
In some banks, however, directors have paid themselves for their services 
in ways far more costly to the bank. Take the following instance : — 

" The qualification for directors of the Northern and Central Bank was 100 shares. 
It was, however, ascertained that each of the original directors took 1 ,000 shares, and 
that besides these, other shares were, at later dates, distributed among the directors 
and their near connections. Instead of paying the calls to the bank, the directors 
and their nominees were severally debited with the amount in a private ledger, locked 
up, and the key deposited with the chief accountant. In addition to this, each director 
had a current account with the bank, and many of them had overdrawn their accounts 
to a very large amount. Nor was this all, for it further appeared that many of them 
were also indebted in large sums of money on notes of hand, which being placed tu the 
account of securities, did not appear in the books as a debit against the directors. 
Upon combining these several items of debt, it was ascertained that there was no less 
than £290,000 due by the directors, and that there was near £14,000 due by the 
managers and clerks." {Committee on Joint-Stock Banks, 1837.) 

It is not creditable to any bank to receive the services of its directors as 
a matter of charity ; nor is it wise. A director who is paid for his services 
may justly be called to account for neglect of duty. In this case, too, he 
cannot expect payment in any other way. In his transactions with the 
bank he is then on the same footing as any other customer. It has been 
said, that the directors are such honorable men that they will attend to their 
duty as strictly if badly paid as if liberally paid. If so, they ought to be 
liberally paid, as it is very desirable that such honorable men should be 
most closely attached to the bank. But we doubt the fact. In matters of 
almsgiving, men will give only what they can conveniently spare. If a 
director is to give his time for nothing, he will give only that portion of 
his time which he cannot more profitably or more agreeably employ else- 
where. In matters of business, men will apportion their services accord- 
ing to the return they receive for them. There is no way of securing 
constant punctuality of attendance on the part of directors, but by paying 
them liberally for that attendance. In some cases where payment has not 
been given, or given only to the managing directors, it is said that the 

125 



A Treatise on Banking. 

government of the bank has fallen into the hands of a few persons whose 
punctuality of attendance has been almost their only banking virtue. But 
the main advantage of liberal payment is its effect upon the minds of the 
directors. Every honorable man wi 11 attend to his duty with alacrity and 
energy, and will even make extra ex tions for the benefit of the bank, 
when he finds that his services a handsomely and liberally appre- 
ciated. 

We need hardly say, that the faults we have pointed out in the admin- 
istration or constitution of joint-stock banks are by no means inherent in 
the system. They are accidental circumstances, arising from its estab- 
lishment in a new country, by parties who had no previous opportunity of 
understanding its principles. The system is no longer new, its princi- 
ples are now well understood, and it may reasonably be expected that the 
calamities of the past will never recur. 



Section XI. --THE ADMINISTRATION OF THE OFFICE. 

In this section we shall consider the following topics : — 

I. The Arrangement of the Office. 
II. The Selection and Appointment of the Clerks. 

III. The proper Distribution of their Duties. 

IV. The Amount of their Salaries. 
V. The System of Promotion. 

VI. The Rules of Discipline. 
VII. The Training of Clerks for higher Offices. 

I. The Arrangement of the Office. 

The proper situation of a bank is a matter of some importance. It 
should be situated in what is deemed the most respectable part of the 
town. If it be placed in an inferior locality, approachable only by nar- 
row and disagreeable streets, and surrounded by buildings the seats of 
smoky and dirty trades, it is not likely to be so much frequented, nor to 
acquire so large a business, as though it were more pleasantly situated. 
Another point to be observed is, that the bank itself should be a handsome 
building. The necessary expenditure for this purpose is no sin against 
economy. It is an outlay of capital to be repaid by the profits of the 
business that will thus be acquired. A portion of the building will pro- 
bably be set apart for the private residence of the manager, or of some 
other officer of the establishment. It is desirable that this portion should 
be entirely separated from the office. The communication should be only 
by a single door, of which the manager should keep the key. The build- 
ing should be so constructed that what is going on in the private house, 
whether in the kitchen, or the nursery, or the drawing-room, should not 
be heard in the bank. The office being thus isolated, must then be fitted 

126 



Arrangement of the Office. 

up in the way that will most effectually promote the end in view. And 
here are three points to be considered, — space, light, and ventilation. 

A chief consideration is space. A banker should take care that his 
clerks have room enough to do their work comfortably. Every account- 
ant knows that he can often work faster if he can have two or more books 
open at the same time ; but if his space is so confined that he must shut 
up one book and put it away, before he can use another, he will get on 
more slowly. The cashiers, too, will be much impeded if they are 
obliged to stand too close to each other ; and the public will be huddled 
together, and will often count incorrectly the money given to them, and 
thus take up the cashiers' time to put them right. Want of space will ne- 
cessarily occasion errors, from the confusion it produces, and from one 
clerk being liable to interruption from the noise or vicinity of the others. 
A banker should therefore take care that his office is large enough for his 
business ; and that it will admit of being enlarged in case his business 
should increase. Ample space is also conducive to the health of the 
clerks, as there will be more air to breathe, and the atmosphere is less 
likely to become polluted by the burning of lamps and candles. 

Another consideration is light. It is well known in every London 
bank that fewer mistakes are made by the clerks in summer than in 
winter. Abundance of light prevents mistakes, and saves all the time 
that would be employed in the discovery of errors. Light is also of great 
importance to the cashiers in detecting forged signatures, and bad or 
counterfeit money. Thieves are also less likely to attempt their robbe- 
ries in a light office than in a dark one. Faint or illegible hand-writing 
can be more easily read, and hence mistakes are less likely to occur. 
The clerks, too, perform their duties with more quickness and cheerful- 
ness. The gloominess of an office throws a gloom over the mind; but 
" light is sweet, and a pleasant thing it is for the eyes to behold the sun." 

The lightest part of the office should be devoted to the clerks. We 
have observed sometimes a violation of this principle. The entrance 
door has been placed in the middle of the front, with a window on each 
side, and the counter thrown across the room, so that the lightest part of 
the office has been given to the public. It is better that the entrance be 
placed at the right or the left corner, and the counter be made to run from 
the window to the opposite wall. The light will thus fall lengthways on 
the counter, and the space behind the counter will be occupied by 
the clerks. 

Ventilation. — Volumes have been written by medical men upon the 
advantages of fresh air, and on the unwholesome atmosphere of crowded 
cities. If the air that circulates in the streets of towns and cities is impure, 
what must be the state of those offices or rooms where twenty or thirty per- 
sons are breathing close together during the whole of the day, and gas 
lights are burning during the evening ! In such cases we are told that a 
person afflicted with consumption of the lungs may communicate the com- 
plaint to others, as they must inhale a portion of the atmosphere which he 
has breathed out. The air in a close office is not only rendered impure 
by the number of people that breathe it, and by the burning of gas, but it 
also contains very frequently particles of dust arising from the floor, 

127 



A Treatise on Banking. 

through the number of people constantly walking in and out. It is almost 
impossible for persons so circumstanced to enjoy for a length of time even 
moderate health. A portion of this evil may be mitigated by a good system 
of ventilation. To obtain this should be regarded as an object of the first 
importance. If a banker does not insist upon the architect performing 
this in the most effectual manner, he must be content to be often put to 
inconvenience through the illness and consequent absence of his clerks. 

Having made due provision for space, light, and ventilation, it will now 
become necessary to arrange the counter, desks, and other furniture, so as 
to enable any given number of clerks to discharge their duties with the 
greatest efficiency, and so as best to promote the public convenience. It 
is not necessary, or possible, to give very minute instructions on this head, 
as much will depend upon the form of the building, the extent of the busi- 
ness, and other circumstances. We will notice only a few general objects 
to be kept in view. 

It is desirable at all times to make those arrangements that shall best 
promote the convenience of the public. 

The counter should be readily accessible, and of sufficient length to 
meet the requirements of the business ; and the cashiers' desks sufficient- 
ly wide apart for the public to be promptly served, and to stand without 
jostling one another. Some banks have two counters, one for paying, 
and the other for receiving. At other banks the cashier does not enter 
the credits, but merely agrees the amount with the customer, and then 
passes them to a clerk, who enters them in the Waste Book. In the same 
way, when a cheque is presented for payment, he gives it to a clerk be- 
hind him, who enters it, and hands the notes to the cashier, who pays out 
the gold and silver. When the business is large, extra or supernumerary 
cashiers are appointed, who take the place of the regular cashiers when 
they are absent at dinner or otherwise, so that during the whole of the day 
all the cashiers' desks are occupied. To relieve the counter, the payment 
of bills that have been presented in the morning and not paid, is usually 
received at a separate desk or office. All these are expedients that should 
be adopted when necessary, to save the time of the public. There are 
few things that try a man's temper more than to be kept waiting a long 
time at a banker's counter ; and he will be very apt to give vent to his 
impatience by quarrelling with the clerks, or reproaching the establish- 
ment. 

Another object is, to place near together those clerks whose duties will 
require them to have frequent communication with each other. If this 
rule be not observed, the clerks will lose much time in the course of the 
day in passing from one part of the office to the other ; and the work will 
not be so expeditiously performed. It is especially desirable that the 
ledger keepers should be placed close behind the cashiers ; so that if a 
doubtful cheque be presented for payment, the cashier may be able to 
show it to the ledger keeper, and be informed if he may pay it, without 
being observed by the party presenting it. 

Another point is, to place the desk of the chief or head clerk in such a 
position that he can see all over the office. " A master's eye will do 
more work than both his hands." In this case, if the counter is crowded, 

128 



Selection of Clerks. 

the chief clerk will perceive it, and appoint additional clerks to assist the 
cashiers. If disputes take place between the clerks, or between the 
cashiers and the public, he will come forward and settle the matter before 
the dispute is carried to high words. He will observe, too, the customers 
who come frequently to the counter, and from their transactions he will 
often draw conclusions respecting their circumstances which will be ser- 
viceable to the bank. It is generally best that many of the clerks should 
be so placed as to look towards the counter. It has been said that this 
draws off their attention from their work ; but we do not think this is gen- 
erally the case, although it may occasionally relieve the irksomeness of 
their duties. A dishonest person standing at the counter, and watching 
an opportunity of committing a robbery when the cashier is engaged, will 
be more likely to abstain from making the attempt when the eyes of other 
clerks have a command of the counter. This arrangement will depend 
in some measure on the direction of the light. The clerks should not 
have their faces or their backs towards the window, but the light should 
fall on them sideways. These matters may appear trifling, but they 
will not be deemed unimportant to those who are intrusted with the 
practical administration of an office. It is only by attention to minute 
things that the business of an office can be well conducted. 

II. The Selection and Appointment of Clerks. 

When a bank is first formed, they sometimes advertise for clerks ; but 
this is usually for clerks of a higher rank, who have had some experience 
in the business of banking. When a bank is established, it has seldom 
occasion for new clerks of this class. A vacancy in one of the higher de- 
partments is filled up by the next clerk in rank, and so on in order, and 
the new clerk comes in as a junior. Applications for this post are usually 
so numerous that the only difficulty is in making the selection. Those 
recommended by parties known to the bank, as customers or sharehold- 
ers, usually have the first claim. In some banks the nomination of the 
junior clerks is regarded as a portion of the patronage of the directors, 
upon the understanding, however, that they nominate none but such as are 
properly qualified, and who shall prove their fitness to the satisfaction of a 
committee of directors. 

In making inquiries into the qualifications of applicants, it is necessary 
to ascertain, in the first place, their age. In London, the age at which 
clerks are admitted into a bank is usually about nineteen. As their first 
duty is to collect payment of bills, it is necessary they should have ar- 
rived at a sufficient degree of strength to be able to make some resistance 
were an attempt to be made to rob them of their bill-case ; and also that 
they should have arrived at an age to be conscious of the responsibility 
of their office. In the country parts of England, and in Scotland, clerks 
are taken at an earlier age ; but the duties are different from thos? dis- 
charged by the same class in London. 

Another consideration is the class of society from which clerks are 
taken. Candidates for the office of bank clerks are usually the sons of 
the middle class of tradesmen, or of professional men, as clergymen, 
officers in the army or navy, or persons in the service of Government. 

129 



A Treatise on Banking. 

During the last war, bankers' clerks were generally tne sons of trades- 
men, as the sons of gentlemen could usually find employment under Gov- 
ernment. But now that places under the Government are not so easily 
obtained, members of what are called respectable families are found 
among the candidates for admission into the service of banks. Each class 
has some advantages. The sons of gentlemen have generally a better 
literary education, and have usually a more courteous address. On the 
other hand, they have no notion of business, and no business habits. 
They have been accustomed to go a-hunting and a-fishing with the sons 
of men of large property, and they look upon banking business as a 
drudgery to which they submit from necessity, but which is much be- 
neath the destiny to which they think they are entitled. On the other 
hand, the sons of tradesmen have been accustomed to notions of business 
from the ordinary conversation of their fathers' fireside ; they know they 
must get their own living ; they look upon their admission into a bank as 
a lucky event, and, consequently, apply themselves to their duties with 
heartiness and cordiality. 

Another inquiry of those who are candidates for admission into a bank 
is, how they have been employed. Lads just come from school, of course 
know nothing of the business of a bank, and, if taken at all, they should 
be taken upon trial for three or six months, so that their qualifications 
may be discovered before they are permanently appointed. Those who 
have been two or three years in a merchant's counting-house are gener- 
ally found to be the most efficient. But to have been in the office of a 
stock-broker or a solicitor, or to have studied for one of the learned pro- 
fessions, is no recommendation. Clerks from country banks, and espe- 
cially those from the banks of Scotland, when introduced into London 
banks, are at first usually considered to be slow.' 

It is also proper to inquire into the parentage of the candidate. For 
although honesty and dishonesty do not run in the blood, yet it is probable 
that religious and virtuous parents have given their children a religious 
and virtuous education ; and a youth who has been accustomed to see ex- 
amples of excellence at home, will be the most likely to exhibit those ex- 
cellencies in his own conduct. A high degree of moral principle is in it- 
self a necessary qualification in a post of trust and responsibility, and it is 
usually associated with a cultivated and improved state of the intellectual 
faculties. " If there be in the character not only sense and soundness, 
but virtue of a high order, then, however little appearance there may be of 
talent, a certain portion of wisdom may be relied upon almost implicitly. 
For the correspondencies of wisdom and goodness are manifold, and that 
they will accompany each other may be inferred, not only because men's 
wisdom makes them good, but also because their goodness makes them 
wise. Although, therefore, simple goodness does not imply every sort of 
wisdom, it unerringly implies some essential conditions of wisdom ; it 
implies a negative on folly, and an exercised judgment, within such limits 
as nature shall have prescribed to the capacity." (Taylors States- 
man.) 

Testimonials are to be received with caution. Young men who come 
to London in search of a place, often bring with them a host of testimo- 

130 



Duties of Clerks. 

nials, which they expect will place them at the head of any list of candi- 
dates. When upon other grounds there is an intention of engaging the 
applicant, these letters of recommendation may sometimes be read. It 
may be useful to observe by whom the testimonials are given, and 
whether those persons have had opportunities of judging of the adaptation 
of the party for the office he seeks. It may also be noticed what qualities 
are, and more particularly what qualities are not, ascribed to the appli- 
cant. It has been said, that when a lady is praised for being " amiable 
and accomplished," it may be inferred that she is neither young nor hand- 
some. So if a testimonial speaks highly of a young man's " industry and 
integrity," it may generally be inferred that he does not possess much tal- 
ent. It is true that these qualities are of more importance than talent. 
But while they are more important, they are also more common ; and if a 
young man possesses any kind of intellectual superiority, the fact will 
certainly not be omitted in his testimonial. 

III. The distribution of the duties of the various clerks is a matter of no 
small importance. Experience is the only efficient guide in making such 
arrangements. We may, nevertheless, lay down a few general princi- 
ples. The great division of the business of a bank office is into the 
cashier's department and the accountant's department. In London banks 
there is a third, — the tellers, or out-door department. In the distribution 
of duties, it is desirable that the accountant's department should be a 
check upon the other departments. The cashiers must not have the con- 
trol of the books, nor the accountants the care of the cash. The account- 
ants' books should show what amount of cash is in the hands of the cash- 
iers ; and it is the business of the cashiers to show that they have that 
amount of cash which corresponds with the accountant's books. If the 
same officer has the care of the cash and the command of the books, he 
may abstract a portion of the cash, and alter the books to make them cor- 
respond. It is further desirable, in large establishments, that two books 
which act as a check upon one another, should not be kept by the same 
clerk. While it is not proper to indulge a spirit of suspicion in regard to 
individuals, it is advisable that the duties of a bank office should be so dis- 
tributed that the intromissions of any one clerk, either by the abstraction 
of cash or the falsification of the books, should be liable to immediate de- 
tection by the entries in some book kept by another clerk. For the same 
reason, it is proper that any document issued to the public (such as de- 
posit receipt , drafts on London, &c.) should be signed by two officers, of 
whom one should belong to the cash, and the other to the accountants' 
department. There ought to be a complete division of labor in a bank. 
Every clerk should have fixed duties to perform, and every duty, however 
unimportant, should be assigned to some particular clerk. If any thing is 
neglected, there should be no doubt as to who is to blame. No one should 
be able to say, " It was not my business ; it was yours." Nor ought any 
duties to be assigned in common to two or three clerks, to be performed 
by them as each may find time. In this case, each will do as little as he 
can, and nothing will be done well. If any dispute arises among the 
clerks as to the due division of their labors, a reference should be made 

131 



A Treatise on Banking. 

to the chief clerk, who will give to each man his work, and hold him re- 
sponsible for its proper performance. 

IV. The Amount of their Salaries. 

According to Adam Smith, the wages of labor are regulated by the fol- 
lowing circumstances : — 1. The agreeableness or disagreeableness of the 
employments themselves. 2. The easiness and cheapness, or the diffi- 
culty and expense of learning them. 3. The constancy or inconstancy 
of employment in them. 4. The small or great trust which must be re- 
posed in those who exercise them. 5. The probability or improbability 
of success in them. 

Mr. Mill makes the following observations with regard to the salaries 
of clerks : — 

" A clerk from whom nothing is required but the mechanical labor of copying, gains 
more than an equivalent for his mere exertion if he receives the wages of a bricklay- 
er's laborer. His work is not a tenth part as hard, it is quite as easy to learn, and his 
condition is less precarious, a clerk's place being generally a place for life. The higher 
rate of his remuneration, therefore, must be partly ascribed to monopoly, the small de- 
gree of education required being not even yet so generally diffused as to call forth the 
natural number of competitors, and partly to the remaining influences of an ancient 
custom, which requires that clerks should maintain the dress and appearance of a more 
highly paid class. 

" It is usual to pay greatly beyond the market price of their labor all persons in 
whom the employer wishes to place peculiar trust, or from whom he requires some- 
thing besides their mere services. For example, most persons who can afford it, pay to 
their domestic servants higher wages than would purchase in the market the labor of 
persons fully as competent to the work required. They do this, not from mere osten- 
tation, but from reasonable motives ; because they desire that those they employ should 
serve them cheerfully, and be anxious to remain in their service ; because they do not 
like to drive a hard bargain with people whom they are in constant intercourse with ; 
and because they dislike to have near their persons, and continually in their sight, 
people with the appearance and habits which are the usual accompaniments of a mean 
remuneration. Similar feelings operate in the minds of men in business with respect 
to their clerks." (Principles of Political Economy, by John Stuart Mill, Vol. I 
pp. 461-475.) 

There would be considerable difficulty in applying the rules laid down 
by political economists with regard to the wages of labor to the case of 
bank clerks. A banker does not hire a clerk because he is the cheapest 
man he can get, nor does he dismiss him as soon as he can get another 
man to do the same work at a lower price. He would not find it his in- 
terest to do this ; for his work is of a peculiar kind. His clerks must have 
a certain degree of education and of manner, and be taken from a certain 
class in society. They are not allowed to engage in any other employ- 
ment ; they have to maintain a respectable appearance ; they must be 
qualified, not merely for the lowest post in the bank, but must be pre- 
pared to take higher posts should vacancies occur. And in every post 
they are intrusted with a large amount of property, and upon their integ- 
rity and prudence much reliance must at all times be placed. All these 
circumstances serve to show, that, in fixing the amount of their salaries, 
the banker should be anxious to err (if he err at all) on the side of 
liberality. 

He ought also to take into consideration the effect which the amount of 

132 



Salaries. 

salary produces on the mind and condition of the party receiving it. If 
an advance of salary quickens the attention or the zeal, or strengthens the 
fidelity of a party, or induces him to cultivate those talents which add to 
his efficiency, or if it enables him to move in a higher class of society, 
and gives him a station and an influence which enable him to be useful to 
the bank, then is such advance of salary, though entered in the books 
under the item of expenditure, an outlay of capital which is repaid to the 
banker with interest in the effect it produces, — an outlay that becomes 
probably one of the most profitable of his investments. We have great 
pleasure in transcribing the following letter from Mr. Samuel Jones Loyd. 
It was addressed to the chief clerk of his London bank. We abstain from 
all eulogium, as the letter will speak for itself: — 

"Dear Mr. Kirbt, — The inclosed draft for £1,000 I request you will place to 
the credit of the ' Clerks' Christmas Fund.' At the close of the first year since my 
accession to the head of this concern, I am desirous of offering to those through whose 
assistance I have been enabled to bring it to a satisfactory conclusion, some substantial 
proof of my sense of their services, and of the interest which I feel in all that concerns 
their comfort and happiness. The year now closing has been marked by some 
circumstances of an accidental and temporary character, which have tended to throw 
an unusual degree of labor and trouble on the clerical department of the office. Of 
the readiness with which this difficulty has been met and overcome I am very sensible ; 
and for this, as well as for the uniform zeal and integrity with which the general duties 
of the office are discharged, I beg that the clerks will accept my grateful acknowledg- 
ment, and that you and they will believe me to be the faithful friend of you all. 

"*S. J. LOYD. 

■ Lothbury, December 2ith, 1845." 

In all banks the junior clerks have lower salaries than the senior clerks. 
In Scotland, a clerk usually serves an apprenticeship of three years, dur- 
ing which he receives but a small salary. This plan has been introduced 
into some of our country banks. In London it does not exist. In the 
private banks, a junior clerk usually commences with £ 60 a year, and a 
portion of the Christmas money. In the joint-stock banks, where no 
Christmas money is allowed, the commencing salary is usually £ SO. But 
the rules of advance are various, and, indeed, must be so, depending as 
they do upon the prosperity of the banks, and other contingent circum- 
stances. One bank may assign a certain fixed annual increase to each 
clerk, whether he advance in rank or not. In this case, his salary will be 
regulated entirely by the number of his years of service. Another bank 
may have a fixed salary for each post, and a clerk has no increase of sal- 
ary except when he takes a step in rank. Another bank may adopt a 
scale of salaries combining the principles of the other two. For instance, 
every post in the bank may have a fixed minimum salary. But each 
clerk holding a post for a certain period (say for five years), has an 
annual advance for that period. Then he stops, and receives no further 
advance until he is promoted to the next post, where again he becomes 
entitled to the annual advances belonging to that post. We give no opin- 
ion as to the respective merit of these plans. But there is one principle 
we would enforce, that the salaries of the clerks should be regulated by 
the prosperity of the bank. If the bank is prosperous, the clerks ought to 
share in its prosperity ; and if the bank is unfortunate, the clerks must 
consent to share in its ill fortune. But, under any cirumstances, a scale 

133 



A Treatise on Banking. 

of salaries is desirable. It prevents caprice on the part of the bank, and 
jealousy on the part of the clerks. The amount of salary in each case 
should be fixed by rule, and not by favor. 

With reference to this subject we quote from Mr. Taylor's work, en- 
titled " The Statesman," a work which he states to have been the result 
of twelve years' official experience : — 

" It is often said, that in order to get efficient service good pay must be offered. But 
this is not true as applied to first appointments of young men. On the contrary, it will 
often happen that the largeness of the temptation, by bringing into activity the most 
powerful interests through which abuses of patronage are engendered, will lead to the 
appointment of a worse man than would have been obtained by a smaller offer. On 
the other hand, though men of promise are to be had cheap, whilst they are young and 
their value is little known to themselves or others, they cannot, when this is no longer 
their condition, be kept for a small consideration, or at least kept contented. But a 
reasonable degree of contentment is of essential importance where the understanding 
is the workman. There is no position so strong as that of a man who stands upon his 
head ; and if he be not induced to the activity of just thinking and clear reasoning, he 
will hardly be coerced to it. Upon the whole, therefore, I would say, that what is 
most conducive to good appointments in the first instance, and thenceforward to deriv- 
ing benefit from them, is to offer small remuneration to the beginner, with successive 
expectancies proportioned to the merits which he shall manifest, and of such increas- 
ing amount as shall be calculated to keep easy, through the progressive wants of single 
and married life, the mind of a prudent man. Upon such a system, if unfit men be- 
longing to influential families shall make good an entrance into the service, they will 
be more easily got rid of; since, finding that they have got but little in hand, and have 
but little more to look to, they will hardly be desirous to continue in a career in which 
they must expect to see their competitors shoot ahead of them." 

The following is an account of the total amount of salaries, morning 
money, gratuities, &c, paid to the servants of the Bank of England in 
London and at the branches, and of the number of persons to whom the 
said amount was paid, for the year ending the 29th of February, 
1832 : — 



820 Clerks and porters, . 

38 Printers and engravers, ... J- £211,903 10s. lOd. 

82 Clerks and porters at the branches, 

940, Average £ 225 each. 



,::l 



Amount of pensions paid in the same period, 193 pensioners, average £161 each, 
£31,243 18s. lie?. 

Securities. — In all banks the clerks give sureties for their integrity, — 
usually two, of £ 500 each ; and in some banks these amounts are in- 
creased on accession to higher offices. Of late years, societies have been 
formed, both in England and Scotland, for the purpose of giving, on the 
part of clerks and others, the amount of security required. These socie- 
ties allege that, — 

" Suretiship by private bondsmen is attended with various inconveniences and ob- 
jections ; instances have constantly occurred in which persons of the highest respecta- 
bility have been obliged to forego valuable appointments, from either the great diffi- 
culty of obtaining security, or a repugnance to place their relatives or friends and 
themselves under the obligations involved therein. The society undertakes, on the 
annual payment of a small sum, to make good in case of default by fraud or dishon- 
esty any losses which may be sustained to an amount specifically agreed upon, and 

134 



Securities. 

by such means obviates the necessity for private sureties, as well as the obligations 
arising therefrom, which often prove as prejudicial to the best interests of employers 
as to the party seeking guarantee. 

" The association offers to the public the following advantages : — 

" To the employed. — It obviates the difficulty of obtaining the requisite securities 
for personal integrity, which has often placed an insuperable barrier in the way of 
many persons of the highest character and ability ; it affords facilities to those in pur- 
suit of employment, and relief from the embarrassment attendant upon asking, with 
the uncertainty of obtaining, private suretiship ; and removes that weight of obligation 
and discomfort which such engagements necessarily impose. 

" To the employer. — The ample capital of the association, with the power and su- 
pervision lodged in the Board of Trade, renders the policy of the company much more 
valuable than that of any individual, inasmuch as it is not liable either to doubt or de- 
preciation. In large establishments, both public and private, where the securities are 
numerous, and the sureties often resident in many different parts of the country, and 
known only by repute, it becomes nearly impossible to watch over their continued ex- 
istence and solvency; and cases of default have frequently occurred when, upon inves- 
tigation, it has been found that all the sureties have been dead for many years. 

" The rates are from 10s. per centum per annum, and upwards (according to the na- 
ture of the employment), on the amount of security required. 

" No charge is made for stamp duty except in special cases ; the usual legal ex- 
penses of surety bonds will therefore be entirely avoided by persons who enter on their 
respective duties under the guarantee of this society. 

" A reduction is made in the premium on the sixth annnal payment." 

The Lords of the Treasury, and a great many banking companies, have 
accepted the guarantee of these societies. 

A new society has recently been formed, entitled " The United Guar- 
antee and Life Insurance Company," the object of which is to grant po- 
licies for fidelity of trust, combined with policies of insurance on life, or 
with deferred annuities or endowments. The following are extracts from 
the prospectus : — 

" Public guarantee and life insurance are, in principle and practice, so closely assim- 
ilated, that they may be fairly recognized as the relative accompaniments of each 
other, and their specific advantages are here mutually presented to the public at a con- 
siderable reduction of premium. 

" In order to provide against the numerous cases of hardship and constant uncer- 
tainty to which private bondsmen are exposed, the directors confidently recommend 
the combined application of the two principles to all classes who may be called upon to 
assume the risk, or who may stand in need of it from others. 

" The superiority of the policies of a public company has, in consequence of the se- 
rious losses which have arisen from decayed or depreciated sureties, induced the 
heads of public institutions and private mercantile firms to require those engaged in 
their service to provide the guarantee of a public company, in lieu of, and in pref- 
erence to, that of private individuals. How much more valuable must that surety be- 
come when strengthened and additionally secured by the contingent personal interest 
(increasing yearly in value) of insurance on life? 

" The life policies thus issued, payable either at a given age, say 50, 55, 60, and 65, 
— or at death, should that event take place before, — or for the whole term of life, — 
and the deferred annuities, so granted in conjunction with the fidelity policies, will, in 
the event of breach of trust, be cancelled, and the premiums paid thereon forfeited. 
This, however, can only occur by a voluntary act of the insured themselves, and will 
not in any other respect affect the value of the life policies or annuities. 

" Particular attention is requested to this system of granting deferred annuities, in 
conjunction with policies for the fidelity of the annuitants ; by which it will be seen 
that, upon paying a moderate sum annually to this company, any young man of ap- 
proved character may secure, in addition to a policy for his fidelity, a certain provision of 
£50 per annum for the remainder of his life, commencing at the age of 50 or upwards. 

" To the provident among that numerous class of persons who either hold or are 
K 135 



A Treatise, on Banking, 

seeking situations of trust and responsibility, this company offers the most complete 
substitute for pensions in old age, which may thus be secured by the insured them- 
selves. 

" The value of this union of the two principles will be extended to parties who de- 
sire surety policies, and whose health may not be sufficiently sound to render their 
lives insurable at the ordinary rates ; and who may endow a child to receive, say £ 100, 
upon attaining the age of twenty-one, — a plan which will be found preeminently ad- 
vantageous to those engaged in* occupations of trust, and of limited income. 

" It will be manifestly apparent that the risks thus combined will render the surety 
policies so granted infinitely preferable to those provided by private sureties and other 
guarantee companies ; and that they hold out to the employers increased security, by 
making the insured specially interested in their own good conduct; and to the em- 
ployed or assured, they insure a greater share of confidence from their employers, and 
independence to themselves, than under the common form of policy, and they are re- 
lieved in a great degree from paying for the dishonesty of others. 

" Should the insured at any time wish to discontinue the surety policy, the life policy 
will not be affected thereby, but will remain in force upon payment thenceforth of an 
annual premium to be specially calculated. 

" To persons whose lives are insured in this company, and who may, at any future 
time, require policies for their fidelity, the directors will be prepared to grant the same, 
in conformity with the regulations of the company, on the payment of a moderate ad- 
dition to the premium chargeable on the fife policies alone." 

The claims of the society are further set forth in a pamphlet on 
" Public Guarantee and Private Suretiship," published by its secretary, 
Mr. James Knight. 

In the year 1841 the Bank of England took measures for discontinuing 
the system of requiring sureties from the clerks. Every clerk subscribed 
annually two shillings per cent, upon the amount of his surety bond. 
When he had subscribed in the course of five years (or immediately, if he 
chose) ten shillings per cent, the liability of his sureties ceased. Every 
new clerk subscribes, when admitted, ten shillings per cent, on the amount 
of the bond he would otherwise give. These contributions are invested in 
the Three per Cent. Reduced, or Consols. This fund is fixed at ,£6,000 
stock. When at this amount, the interest is given to the " Clerks' 
Widows' Fund," a fund established by the clerks, with the assistance and 
support of the bank. When the claims have reduced the guarantee fund 
below £ 6,000, the interest goes to this fund until it has increased to this 
amount. If the claims reduce the fund so low as £ 4,700, then the clerks 
are required to make a further contribution until the fund is again raised 
to £ 6,000. But this contribution is never more than two shillings per 
cent, per annum on the amount of their respective bonds. Nor can any 
claim be brought against the fund greater than the amount of the bond 
that would have been required from the defaulter. The clerks still give 
their personal bonds, which are for the full amount of their deficiencies. 
This is an admirable plan for a large establishment. In adopting it, the 
directors have shown a sound discretion, as it makes all the clerks inter- 
ested in watching over one another. At the same time, they have mani- 
fested that kindness and goodwill which have, we believe, at all times dis- 
tinguished the directors of the Bank of England in their conduct towards 
their clerks. 

V. The System of Promotion. 

It need hardly be observed that some posts in a bank are more import- 

136 



Promotion of Clerks. 

ant than others ; and it is always desirable that the most clever men 
should occupy the most important posts. This object is desirable, but 
how is it to be attained ? 

The three main divisions of employment in a London bank are, the 
cashier's department, the accountant's department, and the teller's or out- 
door department. All the clerks enter, in the first instance, in the tellers' 
department, and their first duties comprise the collection of the payment 
of bills. The senior tellers are occupied within doors in various duties 
connected with the out-door operations. From this department, as vacan- 
cies occur, the clerks are promoted to higher posts in either the cashiers' 
or the accountant's department. 

It is, of course, only in large banks, where there is necessarily a great 
subdivision of labor, that these three departments exist in a separate form. 
In smaller banks, though the duties are the same, yet one clerk may, in 
one day, perform duties belonging to each of the three departments. 

The Cashiers' 1 Department. — The cashiers * of a bank stand at the 
counter, and attend to the public. These officers, in Scotland, are called 
tellers ; but in Scotland their duties are less important, as tellers pay no 
cheques until they have been marked by the accountant, who is their su- 
perior officer. We should form a very inadequate idea of a cashier in a 
London bank, if we considered him only as a mere counter of money. 
Quickness in counting money is indeed one very necessary qualification. 
But, besides this, he should have such a mental organization that he can 
recollect the general average of each customer's balance, so as to be able 
to pay their cheques without a too frequent reference to the ledger- 
keeper. He should also possess a quickness of eye in detecting forged 
signatures. — a self-possession, so as to be cool and collected when the 
counter is thronged with people, — a command of temper, so as not to be 
irritated by undeserved reproach, — and not only a general courtesy of 
manner towards the public, but a peculiar urbanity towards the customers 
of the bank, with a readiness and an anxiety to promote their convenience 
in any matter on which they may require information or advice. In fact, 
it may justly be said, that there is no class of clerks on which the reputa- 
tion of a bank with the public so much depends as on the cashiers. And 
hence, in London banks, those clerks who are deemed the quickest, the 
most able, and the most gentlemanly, are usually promoted to this office. 

The Accountants Department refers to the keeping of the books and 
the accounts. The main qualifications for the clerks in this depaitment 
are, good hand-writing, accuracy in figures, and method in the arrangement 
of their work. Slowness is no positive disqualification, provided it be as- 
sociated, as it often is, with application and perseverance. An accountant 
is not compelled to do any given quantity of work within a given time. 
By a proper arrangement of his duties, he can usually contrive to keep 
himself pretty equally employed during the whole of the day, and on busy 
occasions he can perform what remains in the evening, after the hours of 
public business. A steady perseverance is of the first importance. But 
we must distinguish between those qualities required in the clerks of the 
accountant's department, and those required in the accountant himself. 

* In the United States termed Tellers. — Am. Editor. 
137 



A Treatise on Banking. 

The chief accountant in a bank is not a mere book-keeper. It is one 
thing to keep a set of books previously prepared and arranged, and an- 
other to frame a set of books, or a new system of book-keeping, adapted 
for any operation that is proposed to be carried on. In the latter case, 
mental powers are required that are by no means common. And even 
where a system is established, the chief accountant of a bank will often 
have occasion to consider the best way of passing certain transactions 
through the books, of framing abstracts of operations which the books 
may not immediately supply, of making difficult calculations, and of ex- 
amining lengthy and complicated accounts, and exhibiting them with 
clearness and brevity. A good system of book-keeping, and a clear- 
headed accountant, would have prevented many a bank from stopping 
payment. 

From this statement of the qualifications of cashiers and accountants, it 
will appear that most clerks will be more fitted for one office than the 
other, and it is desirable that each clerk should be placed in the depart- 
ment for which he is best adapted. Where there is no peculiar adaptation, 
and where there is no marked difference, among the clerks, the promo- 
tion should go according to seniority, — not seniority in regard to age, but 
seniority according to the time they have been in the bank. But it will 
often happen, not only in the first, but also in subsequent steps of ad- 
vancement, that the clerk who is entitled to a vacant post by length of 
service, is not so well qualified for it as some of his juniors. But even in 
this case, the individual should not be passed over, if he can perform the 
duties with an average degree of efficiency. Should he, however, be 
wholly unqualified, or fall below mediocrity in his qualifications for the 
office, there should be no hesitation in promoting over him some other 
clerk better adapted for the office. As, however, all such cases will give 
rise to some suspicion of favoritism, and as the party who is passed over 
is sure to think himself unfairly treated, it is desirable that the clerk 
thus promoted should possess such a marked superiority over the other, 
that no doubt can exist of the justice and propriety of the arrangement. 
On this subject, we again quote Mr. Taylor's " Statesman " : — 

" The claims of promotion are twofold : first, merit ; second, length of service. And 
the difficulties to he considered are those which arise when these claims clash ; that is, 
when the most meritorious officer is not he who has served the longest. And, having 
regard to the large public interests and the deep individual concernments with which 
they deal, it may be stated broadly, as a general rule, that merit, or in other words, in- 
dustrious ability, should be the one essential consideration to be regarded in their pi - o- 
motion. But the question then arises, Will the judge be always incorruptible and in- 
fallible? And if not, how are injustice, favoritism, and abusive promotion to be 
guarded against? The ansAver, as I conceive, is, that there can be no perfect protec- 
tion against these evils ; that the principle (like most other principles) resolves itself 
into a matter of degree; and that the protection will be adequate in the main, if the 
rule of preferment by merit, as against seniority, be applied only where there is a 
marked distinction of merit. For there are divers securities, each of which may be 
more or less leaned upon, the aggregate of which will afford in the main all but a cer- 
tain reliance, where the distinction of merit is marked. If motives of favoritism be at 
work, the most able and useful officer will, at all events, have a fair chance of being 
the favorite. But if he labor under some defect (as unsightliness, ill manners, &c), 
which, without impairing his public utility, tends to throw him out of favor, he will 
nevertheless have that hold upon the self-interest of his principal, which he wants upon 

138 



Discipline. 

his good will. Farther, of this intellectual order of men, there will hardly ever he ten 
brought together, of whom one will not have a generally acknowledged superiority to the 
rest. Even the vanities of men make them just, as umpires ; and he who cannot pre- 
tend to postpone nine others to himself, will not consent to postpone himself to any 
hut the best of the nine. It will be found, then, that a man's reputation amongst his 
fellows in an office will seldom fail to be according to his deserts, and that where the 
superiority is marked, the award of common repute will be both just and decisive ; and 
being so, it will rarely happen that the patron will be induced by any motive of favorit- 
ism to brave the reproach of disregarding it. In short, it is the nature of industrious 
ability, acting through various methods and upon various motives, to vindicate its own 
claims under any system in which those claims are recognized ; and the system which 
shall conform to this natural tendency, and be so framed as to legitimate the rising of 
what is buoyant, will be found to work the best. 

" There is, however, a certain moderating hand to be applied, even in the preferment 
of merit. Except in urgent and peculiar cases, in cases of extreme necessity on the 
part of the service, or extraordinary endowments, and character also, on that of the in- 
dividual, preferment should proceed, as Lord Bacon teaches, '■per gradus, non per saltna.'' 
For, besides the ordinary evils attendant upon sudden elevations, it should be observed 
that the hope, and not the fact, of advancement is the spur to industry ; and that by a 
large dispensation of reward at once, which cannot be followed by like rewards in fu- 
ture, the patron sinks his capital, and forestalls that revenue of reward which should 
furnish him with resources of inducement through successive years. Moreover, if a 
man be advanced largely at once, there will not only be little room left for his further 
promotion, but that little room will seem less when measured upon the scale to which 
his ambition will now expand itself; for he who has advanced by a stride, will not be 
content to advance afterwards by steps." 

VI. The Rules of Discipline. 

As the discipline of the office must depend very much upon the chief 
clerk, a description of his duties will describe many of the duties of the 
other clerks. 

The office of chief clerk requires qualifications of no ordinary kind. 
It need hardly be said that he should possess a thorough knowledge of the 
business of the office. He ought also to possess certain moral qualifica- 
tions, such as a command of temper, a love of order and regularity, a 
rigid adherence to discipline, accompanied by kindness of disposition 
and of manners towards his colleagues, a gentlemanly and courteous de- 
meanour, and, above all, he will be expected to exemplify in his own 
conduct those precepts it may become his duty to inculcate upon others. 

The following are the principal duties of a chief clerk : — 

To see that the clerks come at proper time in the morning, are not 
absent unnecessarily during the day, and that they do not leave the bank 
at night until they have finished their work. To see, by occasional in- 
spection, that all the books of the office are kept in a proper manner ; and 
where he finds this not to be the case, to give such instructions and ad- 
monitions as the circumstances may require. To see that during the day 
the counter is properly appointed, and that no delay takes place in attend- 
ing to the wants of the public. For this purpose, it is desirable that his 
desk should be so placed as to command a view of the counter. To see, 
by occasional inspection, that the customers' books are written up in a 
proper manner ; and in case of complaint, he will personally investigate 
the matter, and explain it to the customer. To see, early in the morning, 
that the balance was correct on the preceding night ; and when otherwise, 
he will himself attend on the second or third evening, and direct that 

139 



A Treatise on Banking. 

proper means be employed to discover the difference. To count, at such 
times as may be deemed proper, the money of the several cashiers, and 
when necessary to report thereon to the banker. To see that all the offi- 
cers of the bank conduct themselves towards each other and the public in 
a courteous and gentlemanly manner, and to maintain throughout the 
office a proper state of discipline and subordination. To take charge of 
the stationery and other matters used in the office, and to prevent any loss 
or waste of any portion of the property of the bank. 

Besides the points of discipline hinted at in the above description, there 
are others that may require more particular notice, as 

Punctuality of A ttendance. — To insure punctuality of attendance in 
the morning, some banks adopt the practice of keeping a book, in which 
every clerk writes his name on his arrival ; and when the time has ex- 
pired, a line is drawn, which shows who has arrived in time and who has 
arrived late. 

Punctuality of attendance is an index of character. It may fairly be 
inferred that those who are the most punctual in the morning will be most 
attentive to their duties during the day ; that they have formed the most 
regular habits, and are, consequently, the most deserving of promotion. 
Those, too, who are the most punctual are the most deserving of occa- 
sional holidays. They who are habitually late must be regarded as hav- 
ing chosen to take their holidays by piecemeal each day, and they can 
therefore have no claim to other holidays besides. In all applications for 
promotion or leave of absence, it is deserving of inquiry, whether the 
party is usually punctual in his attendance. With regard to absence from 
illness, it cannot be supposed for a moment that any clerk would pretend 
to be ill when he is not so, in order to have an excuse for absenting him- 
self from the bank. An act of this kind would show such a want of per- 
sonal honor as should be a disqualification for holding any office in a 
bank. 

" Few things occasion more dissatisfaction and annoyance to the supe- 
riors in a bank than the absence of clerks on every slight attack of illness. 
Unless a clerk feels himself quite unable to perform his duties, it is very 
injudicious for him to absent himself. It interferes with his promotion, for 
his superiors will be reluctant to advance him to any post where his ab- 
sence would be more inconvenient than while he is engaged in an inferior 
situation. In addition to this, the superior in the office may attribute the 
attack of ' bile ' or i indigestion ' to the indulgence of a convivial taste, 
which it will be well for a clerk to avoid obtaining a character for. And, 
under any circumstances, a man who continues at his post as long as he is 
able, will stand much higher in the estimation of those with whom he is 
engaged, than he who forsakes his duties on every trivial occasion.'" 
(The Banker' 's Clerk, p. 151, an excellent little work, published as one 
of the series in the Guide to Service, by Mr. Charles Knight.) 

A clerk should take care of his own health. We think it is better for 
him to stand than to sit at his work. His desk should be raised to such a 
height that he can do this without stooping. He should at all times avoid 
pressing his chest against the edge of the desk, as that may produce se- 
rious complaints. The post most friendly to health is that of cashier. 

140 



Punctuality. 

He is generally standing ; his attention and mental faculties are in more 
constant activity, and he is obliged to talk, which is useful to the lungs. 
It may be doubted whether the exercise of the intellectual faculties, when 
not carried to excess nor attended with anxiety, is ever injurious to health. 
Those mental operations which are connected with the office of a bank 
clerk are in themselves beneficial. It is the confinement, the impure air, 
and the keeping of the body too long in one posture, that affects the 
health. Hence, clerks should live at a distance from the bank, and walk 
to and fro. If they reside at the bank, they should take exercise in the 
open air, either in the morning or the evening. When the weather is 
bad, they can walk up and down the room, with the windows open. Any- 
kind of amusement that should throw the body into a variety of attitudes, 
would be useful. Singing is friendly to health, if not carried to excess, 
nor practised in confined or crowded apartments. Boating, in modera- 
tion, is serviceable. Gardening is highly beneficial. A clerk who wishes 
to enjoy good health should never keep late hours, nor get into debt, nor 
gamble in the funds. He should also have a hobby, that is, some kind of 
fixed amusement to employ his time when absent from the bank, in order 
to change the current of his thoughts, and to counteract those evils that 
sometimes arise from a monotony of occupation. If this hobby should be 
of a kind to be useful or instructive as well as recreative, all the better. 
The great disease against which he should guard is consumption. He 
will be more subject to this in youth than in more advanced age. And it 
has been remarked that healthy young men, fresh from the country, 
when appointed clerks, have become more susceptible of consump- 
tion than less robust persons who have been seasoned by a residence in 
London. 

The Bank of England have a medical gentleman who attends at the 
bank one hour every day. He is employed by the directors upon matters 
connected with the health of their clerks. Every clerk, when appointed, 
is examined, to ascertain that he is in good health. If he applies for leave 
of absence on the ground of ill health, he undergoes a medical examina- 
tion. If absent from illness, he is visited by the bank surgeon, who re- 
ports to the directors upon the nature of his complaint, and its probable 
duration. If a clerk complains that his employment is injurious to his 
health, he is examined, and in some cases his employment is changed. 
If he applies for a pension on account of age or illness, he is also ex- 
amined. In each of these cases a formal medical report is drawn up, and 
laid before the directors. The present surgeon is Mr. Alfred Smee, 
F. R. S., of Finsbury Circus, a son of the chief accountant of the bank. 
It is not his duty to prescribe for the clerks ; but in the case of the porters 
or messengers, he acts as their medical attendant, and is paid by the 
bank. 

It is worthy of inquiry, whether this excellent arrangement might not 
be extended, and adopted by other banking institutions. Why should not 
every large company give a fixed salary to a medical man to attend to the 
health of all their clerks ? This would often be useful in preventing ill- 
ness, or in checking its first approaches. It would thus preclude, in some 
cases, those inconveniences which are now felt through the absence of 

141 



A Treatise on Banking. 

sick clerks ; while it would be a boon to the establishment, and save 
them what, in some instances, must be a heavy item of expense. 

Holidays. — It is desirable, on several accounts, that all the officers of 
a bank, and especially those who are intrusted with cash or other prop- 
erty, should once a year have leave of absence for at least a week or a 
fortnight. This should not even be optional ; it ought to be a fixed rule 
with which they should be expected to comply. These absences should be 
arranged to take place at those seasons of the year when they will be of 
the least inconvenience to the business of the bank. These holidays ought 
to be readily granted on the ground of kindness and humanity ; but where 
these feelings do not exist, motives of self-interest alone would prompt a 
ready acquiescence in such applications. In the first place, a great in- 
convenience is often experienced in large establishments from the illness 
of the clerks when they are denied proper seasons of relaxation. In this 
case, the loss of time from ill health is greater than that which would be 
occasioned by holidays. A sick clerk, even when he attends to his du- 
ties, is neither so quick nor so correct, nor can he get through so much 
work, as a clerk who, by proper recreation, has been kept in perfect 
health. These occasional holidays tend very much to improve the efficien- 
cy of an office. When a clerk is absent, the next in seniority takes his 
place ; and when all the clerks have been absent in turn, every duty in 
the bank becomes perfectly familiar to at least two persons, so that in the 
case of those absences which airse from unavoidable causes, little inconve- 
nience comparatively is felt. But while the bank is thus rendered inde- 
pendent of any one individual, it must not be supposed that the absence 
of a clerk lessens the importance attached to his services. When a clerk 
is really efficient, an occasional absence renders his value more apparent, 
and increases the estimate formed of his character ; while the indulgence 
he has received will stimulate his energies and increase his desire to 
render himself more than ever useful to his principals. 

Another advantage to a banking establishment from the absence of 
their clerks is, that it furnishes an additional guarantee for their honesty. 
We have known instances of frauds being carried on for several years by 
clerks who were constant in their attendance, while a single day's absence 
would necessarily have led to a detection of their dishonesty. When a 
clerk takes his holidays, all the property under his care is given over into 
other hands, and the knowledge that he will be called upon to do this 
periodically, may deter him in the first instance from commencing a 
career which must thus be necessarily exposed. 

The following is stated in a city article of the Times to be the arrange- 
ment of the Bank of England on this subject : — 

" It is not generally known that the Bank of England have recently entered into an 
arrangement by which all the persons on the establishment are allowed leave of ab- 
sence once every year, the holiday varying in length according to the length of service. 
To carry out this plan, the whole number of persons is divided into four portions, and 
each of these four portions takes the vacation in one of the four periods of the year 
that follow the payment of the dividends, and precede the shutting, these being the pe- 
riods in which the least business is done. So complete is the system, that the parties 
who take their holiday in the spring quarter one year, take it in the summer quarter 
in the year following, and so on through all the four, that one may not have an unfair 

142 



Bank Books. 

advantage over the other. The shortest holiday, we understand, is ahont nine days, 
and the longest about three weeks." 

Customers'* Books. — It should be a great object with the chief clerk to 
see that the customers' books are written up correctly and neatly, in a 
good hand-writing, and free from blots or erasures. These are the only 
books that go out of the bank, and therefore they are the chief means by 
which the customers can judge as to the manner in which the business of 
the office is conducted. It is not advisable that the writing up of these 
books should be left to the junior clerks. They should be placed in the 
hands of clerks of some standing. The same book should always be 
written up by the same clerk ; and, when it can be so managed, the credit 
and debit side should both be in the same hand-writing. One of the best 
writers in the office should be appointed to this post, and his salary should 
be proportionate to its importance. 

It is the practice of all bankers to let the customers' book be a copy of 
the ledger with the sides reversed ; thus the credit side of the ledger is the 
debit side of the customers' book. The reason assigned for this is, that 
the ledger is the banker's account against his customer, and the book is 
the customer's account against the banker. Hence the customer, when 
he looks at his book, has at his left hand the sums with which he has de- 
bited his banker, and at his right the sums which are to the banker's 
credit. 

Cashiers Deficiencies. — It cannot be expected that a cashier can re- 
ceive and pay away money for a whole year, and yet never make any 
mistakes. Some deficiencies will be sure to arise. Each cashier is con- 
sidered liable to make good his own loss. But, to meet these deficien- 
cies, some banks allow to each cashier a certain sum, — say £ 20 or £ 30 
per annum, — which is called risk-money. Others pay such deficiencies 
as may arise during the year, giving an admonition to any cashier whose 
deficiencies are unusually large. Superior accuracy in this respect is also 
considered as one test of superior merit, and therefore as forming one 
claim to promotion. When a cashier takes his holidays, he delivers up 
his cash to the chief clerk, who counts it and sees that it is correct, and 
then delivers it to the clerk who is to act for the cashier, who signs an 
acknowledgment in the money-book that he has received the right amount. 
The cashier, on his return, will make a similar entry. It is said to be the 
practice in some establishments for the chief clerk to count the cash of 
all the cashiers every Saturday night. But when, from the extent of the 
business, this cannot be done, he counts the cash of each cashier individu- 
ally, at such times as may be most convenient to himself, giving the 
cashier no previous notice of his intention to do so. He immediately re- 
ports to the banker any deficiency he may discover. In all banks it is 
understood that the cashier is not allowed to apply any part of the bank 
money, even temporarily, to his private use, nor to lend any sum, however 
small, to the other clerks, upon their I. O. U.s or other engagement. 
Any violation of this rule, though with no fraudulent intention, is consid- 
ered a sufficient ground for instant dismissal. 

Gambling in the Funds, or in Shares. — Some banks make it a rule to 
dismiss any clerk that is found to be engaged in transactions of this kind. 

143 



A Treatise on Banking. 

The evil effects of such practices are very great. Speculative engage- 
ments will necessarily distract their 'minds, and draw their attention from 
their official duties. If unfortunate, their personal comforts may be di- 
minished : they may incur debts that will require years of saving to liqui- 
date, or they may be tempted to actions which would ruin themselves and 
disgrace their families. 

VII. The Training of Clerks for higher Offices. 

Whatever natural talents a young man may have when he enters a 
bank, he cannot be expected to perform his duties well until he has been 
instructed. There is a good way and a bad way, a quick way and a slow 
way, of performing even the most simple operation. Incorrect or slovenly 
habits, when once acquired, are not easily abandoned. When, therefore, 
a young man enters a bank, he should be placed under the tuition of an- 
other clerk, well qualified to instruct him with regard to all his immediate 
duties. It is also desirable that the chief clerk should not have much 
manual labor, but should have leisure to walk round the office, stand for 
awhile at the elbow of each clerk, observe his peculiar defects, and give 
such instructions as he may deem necessary or useful. The senior 
clerks generally should also be ready at all times cheerfully and courte- 
ously to give instruction to their juniors. 

There are many ways of ascertaining the relative merits of a clerk. 
There is one obvious way ; that is, to inspect the books which he keeps. 
It can readily be seen if they are kept in a good and neat hand, if there 
are any blots or erasures, and if they indicate any great degree of care- 
lessness or otherwise. Quickness is generally an evidence of cleverness. 
A clerk who can count notes very fast, or who can cast up a long column 
of figures very quickly, and yet accurately, is generally a clever man. 
Quickness of hand denotes quickness of head, and it will generally be 
found that these two kinds of quickness go together. We do not say that 
this mechanical quickness of head proves soundness of judgment, but 
neither does it prove the reverse. In a clerk it is a decided recom- 
mendation. 

Another test of the cleverness of a clerk is, the opinion formed of him 
by his fellow-clerks. When men associate together day after day for a 
number of years, both their excellencies and their defects become known 
to each other, and each man falls into the position to which his qualities 
entitle him. The opinion which any one clerk expresses of the relative 
merits of the other clerks will generally be correct, when his own interest 
is not concerned. The opinion he may express will, in fact, be the opinion 
of the office, formed, not only on his own experience, but also on the ex- 
perience of all the other clerks. 

The report of the chief clerk will generally express this united opinion 
of the office. But it is well for a banker to keep himself well acquainted, 
at all times, with the sentiments generally entertained by the chief clerk 
respecting the other clerks, and not ask his opinion merely when there is 
an opening for promotion. On these occasions, feelings of kindness, or the 
reverse, may induce a chief clerk to speak of the party in a somewhat 
different tone from that which he would employ in ordinary times. 

144 



Training of Clerks. 

With a view to the proper training of clerks, it is desirable that there 
should not be too many in proportion to the work. If the clerks are un- 
employed for any considerable portion of the day, their habits of atten- 
tion, of industry, and of quickness are impaired, so that they do less work 
even in those hours in which they are occupied. The duties of each clerk 
should be sufficiently heavy to require a continuous application of the 
mind during the whole of the working hours. If a banker find that the 
clerks have time to read books or newspapers, or to carry on either gam- 
bols or quarrels among themselves, during the hours of business, he may 
safely infer that he has too many hands. By reducing the number, he 
will make each clerk more efficient, and the work will be better done. 
He will also be able to increase their salaries individually. It is better 
that the same amount of money should be distributed among a smaller 
number of effective men, than among a larger number who are less effec- 
tive. The amount of Christmas money received by each will also be 
greater. 

For the purpose of training the clerks, it is desirable that their labors 
should be so subdivided as that the duties of one office should be a train- 
ing for the office immediately above it. The clerk, on his entrance into 
the bank, will thus have to perform those operations that require the 
least degree of professional knowledge, — of knowledge peculiar to the 
business of a bank, - i — and will advance step by step (each step requir- 
ing but a small addition to his previous knowledge) to the higher posts. 
When it is ascertained for which department — the cashier's or the ac- 
countant's — the teller is best adapted, he should be put into that post 
the operations of which will form the best training for those duties which, 
when promoted, he will have to discharge. 

The occasional absences of the clerks are conducive to their improve- 
ment. The juniors thus learn to perform the duties of their superiors. 
New arrangements are formed temporarily for a different division of la- 
bor, and, the hands being fewer, an additional stimulus is given to exer- 
tion. It is also useful, when it can be done, for the clerks to change oc- 
casionally, and do each other's work. Every clerk should be encouraged 
to suggest any improvements for abridging or facilitating his own labor. 
When a bank has several branches, it is often advisable that an occasional 
absence at one branch should be supplied by a clerk brought from an- 
other branch. A good inspector of branches will inspect the cashier's and 
the accountant's department, as well as the manager's ; and when he finds 
any improvement at one branch, he will introduce it into all the other 
branches. 

But the greatest stimulus to improvement in the clerks is an impartial 
system of promotion. It is, perhaps, desirable that instances should occur 
sometimes of a clerk who is entitled to a higher post, from seniority, being 
unfit to take it, in order to show that superior merit is regarded. But it 
should always be obvious that the clerk who is promoted has superior 
merit. If a clerk is put over the head of another from favoritism, or ca- 
price, on the part of the banker, or from the influence of friends, custom- 
ers, or shareholders, or even for qualities good in themselves, but not in- 
creasing his efficiency as a clerk, then will great evils arise from his ap- 

145 



A Treatise on Banking. 

pointment, even though he should be as well qualified as the man who 
was entitled to the post from seniority. 

Another effectual means of training clerks is the daily balance. 

The books are balanced every night, before the clerks leave the bank. 
But mistakes will necessarily occur during the day, and to discover these 
will occupy a little time. The total amount of error is called " the differ- 
ence " ; and to endeavour to discover the error is called " searching 
for the difference." Those clerks who are thus employed in the evening 
are said to be " upon the balance."' In large establishments, it is usual 
to divide the whole body of clerks into classes, who take it in turn to be 
" upon the balance." By this arrangement, all those who are not " upon 
the balance " can leave the bank as soon as their own work is done. The 
smaller the number of clerks on the balance, the better. Thus, in a bank 
of forty-two clerks, six would be sufficient to be on the balance. If 
a larger number — say twelve — were retained, the juniors would do 
nothing, or else they would be employed on the inferior books, from 
which they would learn nothing. But when only six are retained, they 
must all work, and, what is better still, they must all think. They will all 
acquire a thorough knowledge of the whole system of book-keeping, and 
be able to ascertain in what way errors in one book may counteract er- 
rors in another book, and how the errors discovered will bear upon " the 
difference." In large establishments, almost the only way in which a 
junior clerk can learn the whole system of book-keeping, is from being 
" upon the balance." But this is an effectual one. It also gives him an 
opportunity of showing his talents. Some clerks are far more quick in 
discovering the difference than others are ; and this quickness is generally 
a fair criterion of the general talent of the party. The clerk who 
" skulks " the balance, avoids the best means of improvement, and the 
best opportunity of showing his talents. But such persons have usually 
no talents to show. A clerk who acts in this way betrays a conscious- 
ness of being a fool. 

We have here spoken of that kind of training which is adapted to the 
making of clever clerks. But as in the joint-stock banks a clerk may be- 
come a manager, it is desirable that those clerks who are deemed the 
most clever should be put under a course of training that will, with expe- 
rience, qualify them for that office. It is, in some respects, more difficult 
to do this in a large establishment than in a small one. In a bank that 
has forty clerks, one clerk sees only a fortieth part of its operations. In a 
bank where there are only ten clerks, one clerk sees a tenth part, and 
may easily acquire a tolerable knowledge of the whole. A bank that has 
many branches has a great facility for training clerks to become mana- 
gers. When a branch manager is absent from illness, or any other 
cause, one of the senior clerks of that or some other branch will take his 
place, and thus gradually become accustomed to the duties of the office. 

The clerks thus selected for this kind of training should be young men 
who are quick and efficient in the discharge of all their official duties, and, 
moreover, possess a good temper, gentlemanly appearance and manners, 
a degree of literary information, with a desire of improving their knowl- 
edge and their talents. They should not be young men who have en- 

146 



Training of Clerks. 

tered the bank until they can get something better, but those who look to 
banking as their profession, and are ambitious of attaining to the highest 
posts in the establishment. But beyond the qualities we have enumerat- 
ed, it is necessary, above all things, that they should have habits of 
business. 

" Habits of business is a phrase which includes a variety of qualities, — industry, 
arrangement, calculation, prudence, punctuality, and perseverance. And these virtues 
are exercised, not from the impulse of particular motives, but from habit. If you 
hear a man boast of being industrious, you may safely infer that he does not possess 
the habit of industry, for what a man does from habit, he does mechanically, without 
thinking of the merit of his actions, though they may be highly meritorious. Habits 
of business are essential to a merchant. But though essential to a merchant, they are 
not peculiar to him. They are as necessary to a professional man as to a merchant, 
— as necessary to ladies as to gentlemen, — as necessary for the government of a 
family as for the government of a commercial establishment. The greater the intel- 
lectual talents of the individual, the more necessary are habits of business to keep him 
steady in his course. The more canvas he spreads, the more ballast he requires. If 
we examine the history of those illustrious characters who have risen to eminence as 
the masters, the legislators, or the instructors of mankind, we shall find they have 
been as much distinguished by their habits of business, as by the superiority of their 
intellect. While, on the other hand, we could easily point out, in every science and 
in every path of life, some young men who, though of towering genius, have become 
lost to themselves, and have disappointed the hopes of all their friends, through a want 
of habits of business. They have burst upon the world with more than noontide 
splendor, they have attracted universal notice, they have excited big expectations, and 
suddenly they have darted into an oblique course, and passed into oblivion." (Lectures 
on Ancient Commerce, by J. W. Gilbart, p. 94.) 

If a clerk be intended to be trained for a manager, it may be questioned 
whether he will be improved by remaining a long time as a clerk. The 
two offices are very distinct, and they call into operation distinct qualities 
and operations of mind. A very old banker's clerk (unless he has 
been a chief clerk) is generally, from the very length of his service, dis- 
qualified for being a manager. Seven to ten years' experience as a clerk 
is quite long enough, and after that period the sooner he becomes a man- 
ager the better, provided he has the necessary qualifications. Even dur- 
ing that time he should have been occasionally employed in those opera- 
tions that require the exercise of his faculties as a man of business. It 
has often been said, that good servants make bad masters. If this be 
true, it is probably the result of an intellectual more than a moral defi- 
ciency. A lengthened service causes the mental faculties to move in a 
routine from which they cannot be suddenly aroused into an attitude of 
independence, so as to be able to trace causes and effects, to balance op- 
posing considerations, and to engage in those reasoning processes which 
are required by the exercise of authority. Hence it is, that before a clerk 
Is appointed a manager, he should undergo some kind of training. The 
best training for being a manager is that of being chief clerk, or of hold- 
ing an equivalent post next to the manager. It will necessarily follow 
that the holder of such a post will have occasionally to take the place of 
the manager, and the manner in which he may then act will be a fair cri- 
terion by which to judge of his qualifications for that, or a similar sit- 
uation. 

Among the means of training clerks for superior offices, we should give 

147 



A Treatise on Banking. 

a high rank to the formation of a library of banking books, to which the 
whole of the establishment should at all times have access. The remarks 
we made in a letter, addressed to the manager of a country bank, in the 
year 1846, and which was afterwards published in the sixth volume of 
the Bankers'' Magazine, are, we think, not inapplicable to this subject : — 

" I wish you would advise your directors to celebrate their success by 
sending to each of their branches monthly a copy of the Bankers' 9 Maga- 
zine. It would be sent direct from London, the last day of the month, I 
believe, free of expense ; and as the number of next month will com- 
mence a new volume, they could not begin at a better time. I am sure 
this would be a profitable investment of some portion of your surplus 
funds, and would yield an ample return in the results arising from the in- 
creased knowledge and skill of your managers. Here they will learn 
points of law and of practice, with which they were previously unac- 
quainted, and be better prepared to deal with such cases when they occur 
in their own experience. It seems peculiarly necessary that managers of 
branches, who have not the opportunity of immediately consulting with 
any of the directors, should be supplied by the bank with the means of 
obtaining this kind of information. Losses are sometimes incurred by 
joint-stock banks, through the want of knowledge of a little banking law on 
the part of their principal officers. The managers would not be the only 
gainers. The other officers of the branches would have the opportunity 
of self-improvement ; and thus routine clerks might become intelligent 
bankers, and you would train in your own establishment a constant supply 
of able men, to take the places, when necessary, of the existing managers. 
It is one of the excellencies of our system, that the junior clerks may look 
forward to being placed at the head of the establishment ; but this can 
only take place in those instances wherein the clerks endeavour to acquire 
that professional and general knowledge which is necessary in the pres- 
ent day, in order to discharge the duties and maintain the position of a 
manager. Unless they do this, those who are now clerks will remain 
clerks as long as they live, and the next generation of managers will be 
taken from the more instructed classes of society." 

The manager of a joint-stock bank in the midland counties, on whom 
we called last summer, informed us that his directors had recently voted 
^100 towards the formation of a bank library. To the directors of other 
banks we would say, " Go and do likewise." 

In training clerks for intellectual offices, it is advisable not to give 
them too many instructions with regard to minute details. They should 
be taught to think for themselves. A man's talents are never brought out 
until he is thrown, to some extent, upon his own resources. If, in every 
difficulty, he has only to run to his principal, and then implicitly obey the 
directions he may receive, he will never acquire that aptitude of percep- 
tion, and that promptness of decision, and that firmness of purpose, which 
are essentially necessary to those who hold important and responsible of- 
fices. Young men who are backward in this respect should be intrusted 
at first with some inferior matters, with permission to act according to 
their discretion. If they act rightly, they should be commended ; if other- 
wise, they should not be censured, but instructed. A fear of incurring 

148 



Training of Clerks. 

censure, a dread of responsibility, has a very depressing effect upon the 
exercise of the mental faculties. A certain degree of independent feeling 
is essential to the full development of the intellectual character. It should 
be the object of a banker to encourage this feeling in his superior officers. 
Those bankers who extend their commands to the minutest details of the 
office, exacting the most rigid obedience in matters the most trivial, 
harshly censuring their clerks when they do wrong, and never com- 
mending them when they do right,' may themselves be very clever men, 
but they do not go the way to get clever assistants. At the same time, 
they exhaust their own physical and mental powers by attending to mat- 
ters which could be managed equally well by men of inferior talent. 

After a clerk has become a manager, his education has yet to be com- 
pleted. Lord Bacon observes, that reading makes a wise man ; writing, 
an exact man ; and conversation, a ready man. Whatever knowledge he 
may have acquired by reading or otherwise, however exact he may have 
been in the discipline of the office, the young manager has yet to become 
a ready man. He has to apply his knowledge promptly and independent- 
ly, and, at the same time, wisely. This habit he will acquire by time. 
The exercise of authority over other men produces an independence of 
mind which is friendly to the maturing of the understanding ; while the 
necessity for giving immediate decisions in conversation with his custom- 
ers will have a tendency to produce promptness of judgment. There is 
no profession in which experience is more useful than in banking. But it 
is useful, not so much in the amount of knowledge that is acquired 
(though that is important), as in the improvement it imparts to those in- 
tellectual faculties which are called into exercise. It is by constant prac- 
tice that these faculties gather strength. Habits are formed by repeated 
acts, and they can be formed in no other way. 

Before closing this section on the administration of the office, we may 
observe, that although the duties of a chief clerk are quite distinct from 
those of a banker, yet in small establishments they are often performed by 
the same person. In branch banks, generally, the manager is both the 
banker and the chief clerk. But as the branch increases, the manager 
will gradually transfer to the second officer the duties of the chief clerk, 
and confine his own attention to those of a banker. It is too much the 
practice in England to view a bank manager as holding the same relative 
position in a joint-stock bank which a chief clerk does in a private bank. 
This is an error. A manager is not a banker's clerk, — he is a banker. 
And although he may reserve some important cases for the consideration 
of his directors, yet they are usually such cases as a private banker 
would reserve for consultation with his partners, or on which, had he no 
partners, he would take time to form his own determination. 

It may also be observed, that although the government of the office 
will generally be left entirely to the chief clerk, and it is not necessary 
that the banker should be made acquainted with all the trivial delinquen- 
cies of the clerks, yet there are certain acts of misconduct that must al- 
ways be reported, and when reported must be dealt with by the banker 
himself. In a well-disciplined establishment these cases will be rare, but 
they will occur sometimes, and then the mode of reproof or punishment 

149 



A Treatise on Banking. 

will be regulated by the kind of offence and the character of the party. 
Every act of dishonesty, however trifling the amount purloined, must be 
followed by instant dismissal. Acts of deliberate disobedience to orders, 
gross disrespect to superior officers, or acts of immorality that would 
bring discredit on the bank, will generally be visited with the same pun- 
ishment. But extreme punishment should be inflicted only in extreme 
cases. Mere accidental errors, though they may sometimes occasion 
great loss, must not be treated in the same way as those faults which 
arise from gross neglect, or which imply a deficiency in personal honor. 
It is generally a good rule, that a banker should not reprove a clerk in the 
presence of the other clerks. By following this rule, he can adapt his re- 
proofs to the character and position of the party ; for a valuable clerk, 
even when really culpable, is not to be treated in precisely the same way 
as another whose services are of less importance. Nor is it any violation 
of justice, that those faults which arise from inadvertence should be 
viewed differently from those that arise from bad habits. Nor will it 
tend to impair the discipline of the office should it be known that a good 
character will sometimes get a young man out of a scrape, while he who 
had not that good character would be punished more severely for a less 
important offence. Another rule to be observed in administering reproof 
is, in reminding a clerk of his defects, to commence with telling him of 
his good qualities. There is a credit as well as a debit side in every 
man's character ; and it seems hardly fair to run over all the debit items, 
and say nothing of the other side of the account. This plan, too, in 
creases, instead of diminishing, the pungency of the reproof, while it re- 
moves from the mind of the party any impression that the banker is influ- 
enced by motives of personal dislike. 



Section XII. - BANKING BOOK-KEEPING. 

" Although the business of keeping books is extremely easy when 
once the accounts are properly arranged, yet the adaptation of the prin- 
ciple of double-entry to extensive and complicated transactions, so as to 
receive the full benefit of the system, is a process which requires the 
most complete knowledge, not only of the practice, but also of the science, 
of book-keeping." 

" Book-keeping, like all other arts, can only be mastered by industry, 
perseverance, and attention. The learner must think for himself, and 
endeavour to understand the why and wherefore of all that he does, instead 
of resting satisfied with vague notions and words devoid of sense." 

" The study of book-keeping affords an excellent means of intellectual 
discipline ; that is, when its principles are exhibited as well as their appli- 
cation. When the reasoning powers are called into exercise as well as 
the memory, the student who has carefully attended to the instructions, 
and who is the master and not the slave of rules, will experience no diffi- 
culty in unravelling or adjusting any set of accounts, however complicated 
Di diversified." (Double- Entry Elucidated, by B. F. Foster.) 

150 



Book-keeping. 

We have commenced this section with these quotations in order to 
quicken the attention of the reader to a subject, which, by those who do 
not understand it, is considered complicated, and by those who do under- 
stand it, is considered dull. It is, in fact, neither the one nor the other. 
But still it is a subject on which it is difficult to write in such a way as 
to avoid the possibility of being misunderstood. We purpose in this 
section : — 

I. To notice those Preliminary Operations with which a young Book- 
keeper should become acquainted. 
II. To describe the system of Banking Book-keeping as published in 
the former edition of this work. 

III. To state those Improvements of which this system has been found 

to be susceptible. 

IV. To trace the Resemblance between Banking Book-keeping and 

Mercantile Book-keeping. 

I. Preliminary Operations. 

When a young man enters a bank as a clerk, he should be instructed 
to be careful with regard to his hand-writing, or, in his anxiety to write 
fast, he may forget to write well. If he write a bad hand, he should not 
be above taking a few lessons from a professor of penmanship, who will 
teach him to write fast and well at the same time. But, however badly 
he may write, he should try to write plain. Plainness is of more conse- 
quence than neatness or elegance. He should be very careful in writing 
the names of the customers of the bank. If he write them illegibly, there 
will be a loss of time in making them out, or they may be misunderstood, 
so that money may be posted to the wrong account, and thereby loss arise 
to the bank. On this account also, when two or more customers have 
the same surname, he should be very careful to write the Christian 
names fully and distinctly. 

The necessity for writing quickly, and the want of carefulness at first, 
are the causes why so few bankers' clerks comparatively write a good 
hand. But they should remember that this is a most important qualifica- 
tion, and a deficiency in this respect may be an insuperable bar to pro- 
motion. Without this attainment, a clerk cannot be put to write up the 
customers' books, nor to make out the country accounts, nor to write the 
letters, nor to fill the office of secretary. " You ought to be careful to 
write a plain hand. You impose upon your correspondents a very unne- 
cessary and a very unpleasant tax if you require them to go over your 
letters two or three times in order to decipher your writing. A business 
hand is equally opposed to a very fine hand. A letter written in fine, 
elegant writing, adorned with a variety of flourishes, will give your corre- 
spondent no very high opinion of you as a man of business." {Lectures 
on Ancient Commerce, by J. W. Gilbart, p. 239.) 

The plan of writing-masters who advertise to teach good and expedi- 
tious writing in a few lessons is as follows : — The pupil rests his hand 
upon the paper without touching it with his little finger. All the motion 
is then made from the wrist. Those who have to write their names 
L 151 



A Treatise on Banking. 

many times in succession, such as in signing bank-notes or in accepting 
bills, will find that on this plan they can get through their work in much 
less time than if they bend their fingers with every stroke of the pen. 

The young clerk should also be taught to make his figures clear and 
plain, so that a 2 cannot be mistaken for a 3, nor a 3 for a 5. He should 
also take care that the tail of his 7 or his 9 does not run into the line be- 
low, and thus turn a into a 6, and also that the top of his 4 does not 
reach so high as to turn a in the line above it into a 9. He should be 
careful, too, in putting his figures under one another, so that the units 
shall be under the units, the tens under the tens, the hundreds under the 
hundreds, and the thousands under the thousands. Otherwise, when he 
adds up the columns together, he will be in danger of making a " wrong 
cast." 

He will also learn to use both hands at the same time. In counting 
gold or silver coin, he will count with two hands instead of one, and thus 
do double the work. In entering a number of cheques or bills, while he 
holds the pen in one hand he will hold a cheque in the other, and then 
turn over the cheques as quickly as he enters them. He will always 
turn them over one on the back of the other, so that they will be in the 
same order after he has entered them as before, and when they are 
" called over " they will come in the same order in which they are en- 
tered. 

He must also learn to " cast " quickly and accurately. The two main 
qualifications in this operation are accuracy and quickness. To insure 
accuracy, a clerk will cast every thing twice over. The first time he will 
begin at the bottom of the column, and the second time at the top. If he 
begin both times at the bottom of the column, the association of figures 
will be the same ; and if he has fallen into an error the first time, he will 
be apt to fall into the same error the second time. But if he changes the 
order, the association of the figures will be different, and he will not be 
likely to fall into the same error. Quickness can be acquired only by 
practice. But he will accelerate his speed by making his figures plain, 
and placing them strictly in a line under one another. He should also 
learn to cast without speaking, for the eye and the head will go faster 
than the lips. 

He must also be taught to " call over." When he first comes into the 
bank, he will call this sum, £315 10s. 6d., three hundred and fifteen 
pounds ten shillings and six pence, but he will soon learn that more than 
half these words may be suppressed, and he will say, three, fifteen, ten, 
six. And so in the larger amount, £ 4,785 13s. 4d., instead of saying, 
four thousand seven hundred and eighty-five pounds thirteen shillings 
and four pence, he will call, forty-seven, eighty-five, thirteen, four. By 
proceeding in this way, and speaking quickly and yet distinctly, a column 
of figures may be called over and checked in a very short space of time. 
He will, however, take care to avoid ambiguity. Thus, if the sum be 
,£40 5s. 6d., he will not say forty, five, six, as that would mean forty-five 
pounds six shillings ; but he will say, in this case, forty pounds, five, and 
six. In cases where the pounds consist of five figures, the 'first two de- 
noting the thousands are expressed separately ; thus £25,347 8s. 6d. is 

153 



Book-keeping. 

called over, twenty-five, three forty-seven, eight, six ; and six figures, say 
.£468,379 85. 6d., are called over, four sixty -eight, three seventy-nine, 
eight, six. 

He will also be taught to balance ; that is, to find the difference between 
two sums by addition, instead of subtraction. Thus, if the two sums be 
£ 1,347 16s. 3d. and <£ 4,834 19s. 8d. he will be apt, at first, to put one 
under the other and subtract, in this way : 

£4,834 19 8 
1,347 16 3 



Difference, .... £3,487 3 5 
But he must be taught to proceed by a mental process, and will add the 
difference to the smaller number, thus : 

£1,347 16 3 — £4,834 19 8 

Difference, .... 3,487 3 5 



£4,834 19 8 

He performs this operation by beginning with the pence, saying, or rather 
thinking, " three and five make eight," and so on. And thus the two 
sides of an account are made to balance, that is, both sides are of the 
same amount. 

The principle of balancing pervades the whole system of book-keeping. 
For example, we know that if to the amount of cash in the bank last 
night we add the amount received to-day, and deduct the amount paid to- 
day, the remainder will show the amount on hand to-night ; and a novice 
would very naturally put it down in this form : 

£ 

Cash on hand last night, . 100.000 

Received to-day, 60,000 

160.000 
Paid to-day, 80,000 

Cash on hand to-night, £ 80,000 

But an accountant would arrange these four items in such a way as to 
form a balance, thus : 



£ 

Cash paid away to-day . . 80,000 
Cash on hand to-night, . . 80,000 

£ 160,000 



£ 

Cash on hand last night, . . 100,000 
Cash received to-day, . . 60.000 

Balance, . . . £160,000 



In keeping the Progressive Ledger, the principle of balancing is of con- 
stant occurrence. The ledger-keeper brings out a new balance every 
time he turns to an account. But he never deducts, — always adds. And 
if he post several articles at the same time, the method is the same, thus : 

If the credit balance is £ 1,214 3 7 

And he posts the following sums to the debit 

of the account, . . . . . £ 141 2 4 

8 7 6 
49 3 11 
305 4 2 
£710 5 8 

153 



A Treatise on Banking. 

He will add up these items, and mentally add a sum that will make the 
whole equal to £ 1,214 3s. 7d., bringing out this sum as a new balance, 
and placing it under the former one as he goes on. Thus he will say, 
or rather think, " 4 and 6 are 10, and 11 are 21, and 2 are 23, and (here 
he must supply the figure) 8 are 31 = 7 and carry 2"; and he puts 
down the 8 in the pence division of the balance column ; and goes on in 
the same way to the shillings, and afterwards to the pounds. When he 
has placed this sum, .£710 5s. 8rf., he adds up the whole, including this 
sum, in order to check the operation, and to be sure that he is right. 

He will then acquire a knowledge of the names and functions of the 
different books, and of the terms and phraseology used in book-keeping. 
The same book is sometimes called by different names in different banks, 
and different terms are employed to describe the same operations. But 
every clerk should use the language of the office in which he is placed. 
He should call every book by its proper name, and employ the phrases 
which are used by others. For instance, if the word " money " is used 
to denote coin, he must always use it in that sense ; and not say 
" money " when he means bank-notes. 

It will be of great advantage to a sensible youngster, if one of the se- 
nior clerks should take the trouble to give him a general notion of the sys- 
tem of book-keeping, and show him the connection that exists between the 
books that he keeps and the other books of the office. 

II. We shall now describe the system of Banking Book-keeping, as 
published in the former editions of this work. 

Every person, on opening an account with a London banking-house, 
enters his name in a book called the Signature-Book, and this book is re- 
ferred to whenever a draft is presented having a doubtful signature. The 
person is supplied free of cost with a book of printed drafts, and a cash- 
book, called in some houses a Pass-Book, in which is entered an account 
of his debts and credits, as often as he thinks proper to leave it for that 
purpose. 

London bankers do not usually give receipts for money paid into their 
hands, but they enter the amount into the customer's book. A person 
paying money on account of a country book, will sometimes require a re- 
ceipt, and he is then given what is called a shop-receipt, in the following 
form : — 

London, May 1, 1827. 
Received of [the country bank] the sum of one thousand pounds. 
To account for on demand. 

For Hope, Rich, $ Co. 
£ 1,000. A Cashier. 

The name of the party paying the money is not inserted in the receipt, 
as that would require a stamp. 

The payment of a draft, or a bill, is always made either in Bank of 
England notes, or sovereigns, as the party receiving it may desire. The 
London bankers never re-issue any country notes or bills of exchange, that 
may come into their hands. When a cheque is paid, it is cancelled bv 

154 



Book-keeping. 

drawing the pen four times, in different directions, across the name of the 
drawer. In Scotland a paid note or jcheque is said to be " retired." It 
is retired or withdrawn from circulation. 

Before explaining the banking system of book-keeping, I will define a 
few terms which are often used in connection with the subject. By the 
word bill is always meant a bill of exchange not yet due. The word 
cash denotes the various items included in a credit or cash entry, and may 
denote due bills, cheques, bank notes, country notes, or coin. The terms 
cheque and draft are used synonymously, and denote an order on a banker, 
payable on demand. The word draft is never used in London to denote 
a bill of exchange, though this use of the term is very common in the 
country. Both bills and drafts are often called articles, and if they are 
cash, they are styled cash articles. An addressed bill is a bill made pay- 
able at a banking-house. A discounted bill is usually called a discount. 
By money is always meant coin. To post an article is to place or enter it 
in the ledger. One book is said to mark against another when the same 
entry is made in both books. One book is checked by another when any 
error in one book would be detected by some operation in another. To 
check a book, or an account, is to examine it, and prove it correct, or 
make it so. To cast, or cast up, means to add together. The balance of 
an account is the difference between the credit and the debit side. An 
account is said to balance when the credit and the debit side are of the 
same amount. To balance an account is to enter the balance, and to add 
up both sides, and then to bring down the balance as a new amount. 
The credit side of an account, or that on which the cash received is 
placed to the credit of a customer, is the right-hand side as you face the 
ledger; the debit side is the left-hand side. In London, the establish- 
ments of bankers are usually called banking-houses, not banks. A per- 
son who has an account at a banking-house, is said to keep a banker. 

I shall now describe the various books in the order of the different de- 
partments to which they belong. 

I. — The Cash Department. 

The principal books in this department are the following : — 
1. Two Waste-Books. — One is called the Received-Waste-Book, 
and the other the Paid-Waste-Book. In the former is entered an account 
of all the cash received, and in the latter is entered an account of all the 
cheques and bills paid. The Received-Waste-Book is ruled with a double 
cash column on the right-hand side of the page. In making an entry 
into this book you will proceed as follows : — First, enter the name of the 
party who lodges the money ; then enter in the first cash column the par- 
ticulars of which the credit consists, specifying each particular in the 
space at the left-hand. In receiving Bank of England notes, the number 
and date of each note must be mentioned ; but if the notes are numerous, 
make them up in a parcel, and write on the outside the total amount, 
and the name of the party of whom they were received. Call this parcel 
4 Sundries " in your entry. These parcels of sundries will be marked, 

155 



A Treatise on Banking. 

and sent to the Bank of England for other notes on the following day 
Cheques on your own bank are to be entered by the name of the drawer 
and the amount. Country notes are to be entered by the name of the 
London banker at whose house they are made payable. These are dis- 
tinguished from cheques upon bankers, by stating short the number and 
denomination of the notes ; thus, T \j, § . All gold and silver are to be 
called money. After entering all the particulars of a credit, add them to- 
gether, and carry out the amount into the farther cash column. At the 
close of the day add up this outer column, and see that the total agrees 
with the amount in the Day-Book. 

If a customer brings his book with him when he lodges cash, the cash- 
ier enters the credit, and returns the book to him, unless it be left at the 
bank for the purpose of having the debit side also written up. 

In receiving money for a deposit receipt, the entry is made in the same 
way as when the money is placed to a current account ; but the words 
Deposit Receipt, or the letters D". R., are written against the name of the 
depositor. 

In the Paid-Waste-Book is entered an account of all the bills and 
cheques paid by the bank. This book is ruled on each page with a cash 
column on the right hand, and another on the left hand, leaving a space 
between. When a cheque is paid, the amount is placed in the left-hand 
cash column, then the name of the drawer in the open space, and in the 
right-hand cash column are entered the particulars of the payment. Bank 
of England notes are entered by their number. It is not necessary to 
enter the date, as that can be found if necessary either in the Cash-Book 
of the preceding evening, or in the Received- Waste-Book, or the Lists of 
the same day. When a deposit receipt is paid, the same order is ob- 
served, but the letters D. R. are added. All gold, silver, and copper are 
called money. At the close of the day, all the payments are added to- 
gether, and should agree with the amount in the Day-Book. 

Each cashier has a Received- Waste-Book, a Paid- Waste-Book, and a 
Money-Book. 

2. Money-Book. — This is a small book ruled with a cash column on 
the right-hand side of each page, and it contains an account of all the 
coin, that is, the gold, silver, and copper, in the bank. Each cashier 
will enter in his own Money-Book the money he receives and pays in the 
course of the day. On the left-hand page of the book he will copy from 
his Paid- Waste-Book the various sums of money he has paid, and on the 
right-hand page he will copy from his Received- Waste-Book the various 
sums of money he has received. In each case he will enter against the re- 
spective sums the totals in which they are included. Thus, if in paying 
a cheque of £ 175 2s. 6d., he pay 5-2-6 money, he will enter it thus, 
" £ 175 2. 6. £ 5 - 2 - 6." The money is counted up at night, and must 
agree with the balance of the Money-Book ; and this balance is then en- 
tered in the Cash-Book, 

3. Cash-Book. — In this book is entered every night a specification of 
all the cash in the bank. The items will consist chiefly of Bank of Eng- 
land notes, parcels of sundries, country notes, cheques on other banks, 
and the balance of the money. The Bank of England notes are entered 

156 



Book-keeping. 

by their number, date, and amount. The parcels of Bank of England 
notes called sundries are entered by the word "Sundries," then the 
name of the parties of whom they were received, and the amounts ; 
country notes by the name of the country bank, and the London agent at 
whose house they are made payable ; cheques on other banks by the 
name of the drawer of the cheque, the name of the banker, and the 
amount. In this book generally the cash articles are more fully de- 
scribed than in the Received- Waste-Book. In some banking-houses the 
Cash-Book is called the Stock-Book, and in others the Make-up-Book. 

4. Day-Book. — This book is ruled with a double cash column at the 
right-hand side of each page. The accountant enters in the Day-Book 
an account of all cash paid and received during the day, placing each 
transaction under the class of operations or accounts to which it belongs. 
On the left-hand page of the book he enters the cash which is paid, and 
on the right-hand side the cash which is received. He commences by 
writing the day of the week, and of the month ; then on the left-hand side 
he writes a heading, " Current Accounts." Under this head he enters 
all the cheques paid, copying from the cheques the name of the drawer, 
and the amount, which is placed in the first cash column. The sum of 
all the cheques is brought forward into the second cash column. The 
second heading is " Deposit Receipts " ; under which head the individ- 
ual receipts paid are entered, mentioning the number, the name of the de- 
positor, and the sum ; and bringing out the total amount, as before, into 
the second cash column. 

The accountant may, if he please, make these headings in the morning, 
leaving such a space for the transactions under each head as his experi- 
ence may show him to be necessary. Thus, he may keep up his Day- 
Book throughout the day, and merely have to add it up and balance it 
when the bank closes. The other headings may be, " Bills Discounted 
this day," " Interest paid on Deposit Receipts," M Bank Premises," " In- 
cidental Expenses," " Branch Accounts," &c, answering to the ac- 
counts in the General-Ledger. 

On the right-hand page, or credit side of the Day-Book, the cash re- 
ceived is entered under corresponding headings, as " Current Ac- 
counts," " Deposit Receipts," " Bills Discounted paid this day," 
&c, &c. The entries under the heads of Current Accounts, and Deposit 
Receipts, are copied from the Received-Waste-Books : the entiy ex- 
presses only the name and the amount. 

After all the entries have been made, add up the debit and the credit 
sides. To the credit side, add the amount of the Cash-Book on the pre- 
ceding evening ; to the debit side, add the amount of the Cash-Book on 
the same evening ; and if the totals agree, the " bank is right," that is, 
the transactions of the day have been correctly entered ; but if not, then 
the bank is wrong, and the error must be discovered by " marking ofF" 
the various books. 

In large establishments the Day-Book is divided into two books ; the 
debit side forming one book, and the credit side the other book. One is 
called the " Paid Day-Book," and the other, the " Received Day-Book." 
The advantage of this division is, that two persons can be employed at the 

157 



A Treatise on Banking. 

Day-Book at the same time. In some banks the Day-Book has three 
cash columns, the third being used for transfer entries. These are en- 
tries in which no cash is actually paid or received by the bank ; but an 
amount is transferred from one account to another. In other banks, all 
the transfers are passed through the Received- Waste-Book. By some 
London houses the Day-Book is called the Cash-Book, and its two divi- 
sions are called the " Received-Cash-Book " and the " Paid-Cash- 
Book." 

5. Current- Account-Ledger. — In this book every customer has a 
separate account. The sums received to his credit are posted from the 
credit side of the Day-Book, and the Ledger folio is placed in the Day- 
Book, in a column ruled for that purpose. The debit side is posted from 
the cheques themselves, and the Ledger folio placed in the debit side of 
the Day-Book on the following morning, when the Day-Book is marked 
against the Ledger. The entry of a cheque in the Ledger includes the 
date of payment, the name of the party to whom it is payable, and the 
amount. The entry of a credit includes the date, the word " Cash," and 
the amount. When the cash is paid into the bank by a third party, it is 
usual to enter it in the Ledger as " Cash per A. B." When a credit 
arises from a bill lodged for collection having become due, the name of 
the acceptor is substituted for the word cash. 

Some banks follow what is called the progressive plan of keeping the 
Ledger. By this plan the balance is brought out every day, and thus we 
see the progress of the account. In the ordinary way, each page of the 
Ledger is divided into the debit and the credit side, and each side has 
ruled columns for the date, the transaction, and the amount. But in the 
progressive Ledger there is only one column for the date of both the 
credits and the debits ; one space for a description of the transaction, 
whether credit or debit ; and then three cash columns. The first column 
is the debit column ; the second is the credit column ; and the third is the 
column into which the daily balance is brought out. The advantage of 
this plan is, that you can see at once what sum a party has on his ac- 
count, without the delay of adding up the debit and the credit columns. 
Most banks that allow interest on the balance of the current accounts, 
keep their Ledger on the progressive plan ; and, besides the columns I 
have mentioned, there are, on the right side of the balance column, a 
space for inserting the number of days the balance may remain station- 
ary, and two interest columns, one for the interest of a credit balance, 
and the other for the interest of a balance overdrawn. Most banks divide 
the Current- Account-Ledger into two or more parts, and the names of the 
depositors are placed in alphabetical order, from the beginning of the first 
Ledger to the end of the last. 

6. Deposit-Receipt-Book. — Deposit Receipts are receipts granted 
for sums of money that are likely to remain a considerable time, and 
upon which interest is allowed. These receipts are distinguished from 
current accounts. Cheques cannot be drawn against any sum lodged as 
a deposit receipt ; but when the amount, or any part thereof, is with- 
drawn, the receipt itself must be produced at the bank, and delivered up. 
The Deposit-Receipt-Book is not kept ledger-wise ; that is, each person 

158 



Book-keeping. 

has not a separate account opened for him in a distinct part of the book, 
but the receipts are entered chronologically, according to the date of the 
lodgment. The entry includes date of lodgment, name of depositor, pro- 
fession, residence, amount, interest paid, principal and interest. The last 
two particulars are, of course, not entered until the receipt is cancelled. 
If a party is desirous of withdrawing only a part of the lodgment, the 
whole receipt is entered as paid, and a new receipt made out for the sum 
which remains. 

II. — The Bill Department. 

Bills are divided into two classes, — bills deposited, and bills discount- 
ed. Bills deposited are bills lodged in the bank for collection, to be 
placed, when due, to the credit of the depositors. Bills discounted are 
those for which the money has been advanced, and which are therefore 
the property of the bank. These two classes of bills are entered in sepa- 
rate sets of books ; but, as the books are kept in nearly the same manner, 
I shall describe them together. 

1. Bill-Register. ) These books are kept, as the word regis- 
Discount-Register. ) ter seems to imply, chronologically, the bills 

being entered immediately after each other, in the order in which they 
come into the bank. The entry includes date when deposited or dis- 
counted, name of ingiver, drawer, accepter, date, term, when due, 
amount, daily amount. The bills are numbered, and the register-number 
placed upon each bill. The daily amount of the Discount-Register is en- 
tered in the debit side of the Day-Book, under the head " Bills Discounted 
this day." I advise that the headings of the columns of this, and of all 
the other books, be printed. This saves time and prevents mistakes. 

2. Bill-Ledger. ) In these books a separate account is opened 
Discount-Ledger. ] for each party ; and the same bills which have 

previously been entered in the Registers are entered in these Ledgers ; 
but the entry is much shorter. A full description of a bill is given in the 
Register only, and the register-number is placed as a reference in every 
book in which the bill may subsequently be entered. The entry in the 
Bill, or Discount Ledger, includes date when deposited or discounted, 
name of accepter, when due, and amount. In some banks the Discount- 
Ledger is kept upon the progressive plan, which is very useful, as it. 
shows at once to what amount any party may be under discount. In ad- 
dition to this, some banks place in the Discount Ledger an account of all 
bills they may have discounted, to which the party is an accepter. These 
bills are distinguished from those which have been discounted for the 
party himself, by being placed on the left-hand side of the page. This 
account is also kept on the progressive plan. A Discount-Ledger kept 
in this way will have three cash columns ruled on each side of the page : 
the three on the left-hand will be headed " Where Accepter," and the 
three on the right-hand will be headed " Where last Indorser." Between 
the two sets of columns will be entered, date when discounted, register- 
number, name of accepter or drawer, when due. The advantage of this 
plan is, that on turning to any party's account, you see at once the whole 

159 



A Treatise on Banking. 

of his engagements to the bank, whether arising from bills that have been 
discounted for himself, or bills to which he is only the accepter. 

3. Bill-Journal. Discount-Journal. — In these journals the bills 
are entered under the respective days on which they fall due. For this 
purpose, the day of the week, and of the month, is placed at the top of 
each page. This book may be made to last exactly a year, by having 
headings for every day, from the 1st of January to the 31st of December, 
omitting Sundays. The entry includes the register-number, name of de- 
positor, or for whom it was discounted, accepter, and amount. The Dis- 
count-Journal has three cash columns, — one for the amount of each bill, 
another for the bills paid, and another for those unpaid. The entry is 
made in the first column, on the day the bill is discounted ; and in the 
other two on the day the bills fall due. The total amount of bills paid 
each day is copied from the Journal into the received side of the Day- 
Book. Those unpaid are entered into the transfer column of the Day- 
Book, and in the Past-Due-Bill-Book. The Bill-Journal need only have 
one cash column, as most banks find it more convenient to credit their 
customers' accounts with all the bills on the day they fall due, and debit 
them on the following day for those that remain unpaid. Those banks, 
however, that prefer it, may have separate columns in the BilU Journal for 
the paid and the unpaid bills ; and, in that case, the unpaid bills are re- 
turned on the following day to the depositor, without being passed 
through his cash account. This is sometimes called being " entered 
short." Some b?pks make one book serve the purpose of both a Bill- 
Journal and a Discount-Journal ; one page of the book being used as a 
Discount-Journal, and the opposite page being used as a Bill-Journal. 

4. The Lists. — Each banking-house divides London into a certain 
numbpr of districts, arcording to the extent of its business. Each district 
is called a walk, arid usually takes its name from the direction in which it 
lies ; as the East Walk, the West Walk, and so on. To each walk is 
assigned a book, in which is entered every day a list of the bills due in 
the walk ; and hence the bock is called a List. Each List takes its name 
from the walk to which it belongs ; as the East List, the West List, &c. 
The page is divided into four columns, the first and third of which are 
cash columns. In the first column is entered the amount of the bill ; in 
the second, the name of the accepter and the register-number. This is 
done the day before the bills are due. After the teller has returned from 
presenting these bills for payment in his walk, he " answers " each bill ; 
that is, he places against it.an account of the cash he has received for it, 
whether cheques, bank-notes, or money. The amount is entered in the 
third column ; and, in the fourth, the description of each kind of cash. If 
the bill be not paid, he writes L. D. for " left direction," and then enters 
the bill in the " Unpaid List." 

In the Unpaid-List are entered all the bills not paid when presented 
for payment. In the course of that day or the following, these bills are 
" answered," either by being paid, or by being passed to the debit of a 
customer's account, or by being transferred to the Past-Due-BL |, \Book. 
In some banks the Unpaid-List is called the " Take-up-Book." 

Cheques upon other banks are entered in the Lists in the sai*\>3 way 

160 



Book-keeping. 

as bills, unless the bank sends a clerk to the Clearing-house, and then they 
are entered in the " Clearing-out-Book." 

From this description it will be seen that when a sum is received to the 
credit of a current account, it is entered in the Received-Waste-Book, 
copied from thence into the Day-Book, and from thence into the Current- 
Account-Ledger. When a cheque is paid to the debit of a current ac- 
count it is entered from the cheque itself into the Paid- Waste-Book, the 
Day-Book, and the Current- Account-Ledger. 

When a sum is received for a deposit receipt, the sum is entered before 
the receipt is granted in the Deposit-Receipt-Book, and afterwards in the 
Receipt- Waste-Book and Day-Book. When a deposit receipt is paid, it 
must be discharged in the Deposit-Receipt-Book, then entered in the Paid- 
Waste-Book, and afterwards in the Day-Book. 

When a bill is discounted, the discount is calculated by the accountant, 
who at the same time observes if it is drawn on a proper stamp, and is in 
every respect a regular and negotiable instrument. If the party for 
whom it is discounted have a current account, the full amount of the bill 
is placed to his credit, and he is debited for the interest, if he have no 
account, he is paid the amount minus the discount, and the entry is made 
in the Paid-Waste-Book. The bills discounted each day are entered in- 
dividually in the Discount-Register, and the total amount copied into the 
Day-Book. The bills are also entered individually in the respective ac- 
counts in the Discount-Ledger, and under the days they fall due in the 
Discount-Journal. When these bills are due, the amount paid each day 
is entered in the Day-Book in the cash column, and the amount unpaid is 
transferred to the Past-Due-Bill account, and is entered in the Day-Book 
in the transfer column. 

When a bill is deposited, it is entered in the Bill-Register, the Bill- 
Ledger, and the Journal. When due, it is placed to the credit of the 
party by whom it was lodged, and is copied from the Journal into the 
Day-Book, thence into the Current-Account-Ledger. If unpaid, the ac- 
count is debited on the following day, and the bill is returned to the de- 
positor. 

At the commencement of each day, all the entries made the preceding 
day in the Day-Book are marked against the respective books by the ac- 
countant, or under his superintendence. He also marks the Cash-Book, 
and checks the adding up. The Customers' Books are then compared 
with the Current- Account-Ledger. The debit side of these books is usu- 
ally written up the preceding evening from the vouchers by the tellers, or 
out-door clerks. The accountant writes up the credit side, and sees that 
both sides agree with the Current- Account-Ledger. 

III. — The Country Department. 

In this department is managed the business of the country banks, and 
of those customers who live in the country. When the letters are deliv- 
ered in the morning by the postman, one clerk takes them and enters in 
the Waste-Book the cash inclosed in the letter to the credit of the respec- 
tive parties. Another clerk takes the letters and enters the hills in tho 

161 



A Treatise on Banking. 

Country-Bill-Register, the Bill-Ledger, and the Bill-Journal. The letters 
are then handed to a third clerk, who copies off into a book all the pay- 
ments, which are to be made immediately in cash. This book is usually 
called the Draft-Book, as the party receiving the money signs a draft for 
the amount, which is as good as signing a receipt. If the payment is to 
be made to a banker, he receives notice in a printed form, called a memo- 
randum ; but if the payment is ordered to be made to a private individual, 
he must call for it, and claim the exact amount. The following is the 
form sent to a banking-house. The right-hand side is filled up by the 
house to whom it is sent, and the memorandum is paid through the 
clearing. 

London, December 1, 1834. Qg£") London, December 1, 1834. 

Messrs. Steady fr Co. CX>0 Messrs. Hope, Rich, $- Co. 

Receive of [the country bank], per r^^O^s Pay E. F., Esq., or bearer, the sum 

Messrs. Hope, Rich, Sf Co., the sum of C>)0 of one hundred pounds, on account of 

£ 100. C§£>?? W* 6 comtr y bank]. 

• OOO For Messrs. Steady Sr Co. 

On account of [E. F., Esq.] <380 £ 100. A Clerk. 



A fourth clerk now takes the letters, and enters all the advices (that is, 
bills advised to be paid when due) in the Advice-Book and in the Advice- 
Journal. The corresponding clerk who answers the letters usually man- 
ages the stock department. Hence he observes the orders to purchase or 
sell stock, to procure powers of attorney, and other business of that kind. 
When writing a reply to the letters received, he notices if all the items in 
the letters are marked by the proper clerks. If any thing is wrong, he is 
informed of it. Bankers' letters are usually short and plain, comprising 
only two or three lines. The following example includes all the ordinary 
topics : — 

Messrs. Hope, Rich, & Co., Bankers, London. 

Country Town, May 1, 1827. 
Gentlemen, — Inclosed we remit you sixteen bills, value £ 1,750, and cash £250, 
making together £ 2,000 to our credit ; and we subjoin a list of payments and advices, 
to be made to our debit. We will thank you to purchase £ 10,000 new Fours, in the 
name of James Wealthy, gentleman, of Stately House, near Prince Town; and for- 
ward us a power of attorney for sale, and dividends of £ 200 Consols, now standing in 
the name of Susan Thrifty, spinster, of this place. Please inform us of the respecta- 
bility of Messrs. John Careful & Co., of South wark, — they bank at Messrs. Steady & 
Co., Lombard Street. The bill you sent us to present here for payment has been paid, 
and we credit you £ 50, the amount. We herewith send you the signature of our rela- 
tive, Mr. John Keen, who is going to London, and whose drafts to the extent of 
£ 3,000 we wish you to honor to our debit. On Mr. Keen's return, which will be in 
about a week or ten days, he will bring with him our paid notes. 

We are, Gentlemen, 

Your obedient Servants, 

Keen, Busy, & Co. 

[reply.] 

Messrs. Keen, Busy, & Co., Bankers, Country Town. 

London, May 2, 1827. 
Gentlemen, — We have received your favor of yesterday's date, inclosing sun- 
dries, value £2,000, which we have passed to your credit, and note your lists of pay- 

162 



Book-keeping. 

ments and advices. We also credit you £ 1,476 16s. 6c?., per Messrs. Good & Co., on 
account of John Green. We have inquired of Messrs. Steady & Co., as to the respec- 
tability of Messrs. John Careful & Co., and are informed they are highly respectable. 
We now inclose a stock receipt for Mr. James Wealthy's £ 10.000 new Fours, 
£10,012 10s. to your debit; and also Susan Thrifty's power of attorney, for which we 
debit you £ 1 Is. 6c?. ; also a dishonored bill on Badluck, noted £ 100 Is. 6c?., to your 
debit; and your weekly cash account and monthly account current, which we trust will 
be found correct. We debit you £ 50 for the bill you had the goodness to present for 
us ; and we now inclose anotfier on White, £ 120, which we will thank you to get ac- 
cepted and return. We have opened a credit in favor of Mr. John Keen for £3,000, 
and will forward your paid notes by him as requested. 

We are, Gentlemen, 

Your obedient servants, 

Hope, Rich, & Co. 

Those London bankers who act as agents to banks, or to other parties 
in the country, will have occasion for the following books. The first 
seven are kept in the same manner as the corresponding books in the 
Town Department. All the entries in the Country Ledger, as well as 
those in the Town Ledger, must first pass through the Waste and Day- 
Books. The credit side of the Ledger is posted from the Bill-Journal 
and the Day-Book. The debit side is posted from the vouchers them- 
selves, and, like the debit side of the Town-Ledger, will mark against the 
Paid-Day-Book and the " Clearing-in-Book." 

1. A Country-Ledger. 

2. Country-Bill-Register. 

3. Country-Discount-Register. 

4. Country-Bill-Ledger. 

5. Country-Discount-Ledger. 

6. Country-Bill-Journal. 

7. Country-Discount- Journal. 

8. Advice-Book. — In this book are entered an account of bills advised 
to be paid on account of the Country Banks. This book is kept ledger- 
wise, each bank having a separate account. 

9. Advice-Journal. — This book is similar to the Bill-Journal, and it 
contains the advices under the heading of the days on which they are to 
be paid. 

10. Credit-Book. — This book contains an account of the credit grant- 
ed by a country bank in favor of any party. Each party has an account 
open for him in this book, and the amount of his credit is placed to this 
account. He is debited for such cheques as he may draw, and the 
cheques are then passed to the debit of the country bank in the Country- 
Ledger. 

11. Acceptance-Book. — In this book are entered those bills which 
have been received from the country, and which require the acceptance 
of the party on whom they are drawn. The entry includes the date 
when taken out, the name and residence of the drawee, the register- 
number, and the amount. There are also two vacant columns, in one of 
which the clerk who takes the bill for acceptance enters his initials when 
he brings it back ; in the second column are entered the initials of an- 
other clerk to whom the bills when " brought in from acceptance " are 
delivered. Though this book is connected with the country department, 
it is usually kept in the town office. 

163 



A Treatise on Banking. 

12. Stock-Book. — London bankers have usually powers of attorney 
from their correspondents in the country, authorizing them to receive divi- 
dends on the government funds. All these are entered in a book called 
the Stock-Book. The book is divided into several parts for the different 
kinds of stock, as 3 per Cent. Consols, 3 per Cent. Reduced, &c., &c. 
In each division are entered the powers of attorney held by the bank. 
The entry includes date of the powers, names of the attorneys, names of 
the holders of the stock, and the amount. These entries should be made 
a tolerable distance apart from each other, to leave room to notice any 
alteration that may take place in the amount of the stock either by sales 
or new purchases. 

Every country bank keeps an account with a London bank. The 
country banker receives from London a weekly statement of his cash ac- 
counts, and a monthly account current. The cash account is a copy of 
the London banker's ledger. But as the London banker does not con- 
sider as cash any thing which may not be immediately turned into Bank ■ 
of England notes, the cash account does not exhibit a statement of the 
undue bills which the country banker may have remitted, nor of the bills 
which he may have advised to be paid. By means of a monthly account 
current he has a full view of all these transactions. On the credit side of 
the account current is entered the total amount of each remittance, 
whether it consists of bills or cash. These are followed by entries of 
" extra " sums of cash that have been lodged to the credit of the country 
bank by parties resident in London. On the debit side of the account 
current is placed the total amount of the 4i advices " ; that is, of bills ad- 
vised to be paid, and also any " extra " payments of " drafts " to per- 
sons in London. Then the account is balanced, and we have an easy 
check by which any error that may have crept into either the cash ac- 
count or the account current is detected. For if both accounts be correct, 
the amount of advices not yet due, added to the balance of the account 
current, will be equal to the amount of bills not due, added to the balance 
of the cash account. 



IV. — The Note Department. 

Those banks that issue notes, will have occasion for 

A Note-Register. — In which the denomination, number, and date 
of the notes will be entered when prepared for circulation. The total 
amount of notes, as soon as they are received from the stamp-office, or 
at least as soon as they are signed by the banker or manager, are entered 
to the credit of " note account," and are afterwards taken down daily as 
part of the " cash" in the possession of the bank. If the notes on hand be 
deducted from the balance of the note account, the remainder will show 
the amount of notes in circulation. Another way is to open an account 
for " Notes in Circulation," and to credit this account for the notes on 
hand every morning, and debit it for the notes on hand every night : the 
balance will show the amount of notes in circulation. There should also 
be a book for the " Register of Cancelled Notes," in order to keep an ac- 
count of those notes which, having become unfit for further use, have 

164 



Book-keeping. 

been cancelled and destroyed. The notes when cancelled are placed to 
*he debit of the " Note Account." 

V. — The Branch Department. 

In those banks that have branches, the head office keeps an account 
with each branch in the same way as a London banker keeps an account 
with a country bank. There is usually an additional " Bill-Register " for 
the bills payable at branches. Each branch has also two Bill-Registers, 
for the bills payable at head-office, and the bills payable at branches, and 
frequently another for the bills sent for collection to agents, where the 
branch does not remit all its bills to the head office, but direct to agents, in 
other places in order to be collected. Every country banker has also 
similar Bill-Registers for " Bills payable in London," " Bills payable at 
Bristol, Manchester, &c," as the case may be ; and of course correspond- 
ing accounts must be opened in the General-Ledger. 

There must also be a book for entering " Branch Notes paid." These 
notes may either be placed as the debit of the branch on the day they are 
oaid, or they may be carried daily or weekly to the debit of an account 
to be called " Branch Note Account," and may be placed to the debit of 
the branch on the day they are sent home. 

VI. — The General-Ledger. 

Into this Ledger, under the various accounts, will be entered the totals 
of the corresponding headings or accounts specified in the Day-Book. 
The accounts in this Ledger denote the various classes of operations, and 
the balances show at all times the exact state of the bank. Every Satur- 
day night the totals and balances of these accounts should be taken off on 
si balance-sheet. When all the debits are added together, and all the 
credits are added together, the two sides will agree ; that is, they will be 
of the same amount. These balance-sheets may be printed and bound 
together in a book, to be called the " General-Balance-Book." I cannot 
better explain the General-Ledger than by giving the form of the weekly 
balance-sheet, with the names of those accounts which most banks have 
occasion to introduce. I have distributed these accounts into five classes : 
— 1. Lodgments; 2. Investments; 3. Expenditure; 4. Cash Account, 
with Branches ; and 5. Proprietors' Accounts. Each bank, however, 
will open such accounts as are adapted to its transactions. Whatever 
books the business may render necessary will require to have correspond- 
ing accounts. The General-Ledger contains the summaries of all the 
other books. Thus, the account called " Current- Accounts " contains 
the summary of the Current-Account-Ledger. The account called " De- 
posit-Receipts " is a summary of the Deposit-Receipt-Book. The ac- 
count called " Bills discounted " is a summary of the Discount-Register 
ind the Discount- Journal. In this way every book in the office has a cor- 
responding summary in the General-Ledger. Hence, this book is a check 
vipon all the other books ; and by means of these summaries, the partners 
or directors of a bank can see at once the actual state of their affairs, and 
«*,an trace the progress or decline of different branches of their business. 

165 



A Treatise on Banking. 



THE 



BANKING COMPANY. 



Amounts and Balances of the General Ledger on 



Amounts. Dr. 



Balances. Dr. 



Titles of Accounts. 



I. Lodgments. 

London Current Accounts. 

Country ditto. 

Deposit Receipts. 

Bills Deposited (in London). 

Ditto (from the Country). 

Notes in Circulation. 

Credits on Agents. 

II. Investments. 

Bills Discounted (in London). 

Ditto (from the Country). 

Past-Due Bills. 

Government Stock. 

East India Bonds. 

Exchequer Bills. 

Loans to Customers. 

Ditto to Brokers. 

Interest Account. 

IU. Expenditure. 

Bank Premises. 

Rent. 

Taxes.* 

Salaries. 

Stationery. 

Incidental Expenses. 

Law Expenses. 

IV. Cash Account, with 

Branches. 

Branch A. 
Branch B. 
Branch C. 
Branch D. 

V. Proprietors'Accounts. 

Paid-up Capital. 
Preliminary Expenses. 

Dividend Account. 

Unclaimed Dividends. 

Surplus Fund. 

Profit and Loss. 

Fund for Bad Debts. 

General Account of Cash. 



166 



$£ 



Ealances. Cr. 



Amounts. Cr. 



Book-keeping. 

It will be observed, that the accounts introduced into the preceding 
balance-sheet are such as would be necessary to a London bank that had 
country agencies and branches, and issued notes. No such bank exists. 
But I have introduced all these accounts that each bank may take those 
which are adapted to its transactions. It will also be observed, that I have 
kept the country business distinct from the town business ; so that the 
comparative extent of each may be immediately perceived. I have intro- 
duced cash columns for the amounts as well as the balances ; for although 
the balances are sufficient to show the actual state of the bank, yet the 
amounts are necessary to show the business that has been done since the 
previous half-yearly balance. 

1. The first class of accounts, under the head of Lodgments, are all 
credit accounts ; that is, the balance is on the credit side. 

Current Accounts are those which are usually kept by the London 
bankers, and are called by the Bank of England " Drawing Accounts. " 
Deposit Receipts are more permanent lodgments, upon which the joint- 
stock banks allow interest. The account " Bills Deposited," not be- 
ing a cash account, might be omitted without deranging the balance of the 
General-Ledger. If introduced, its balance must be placed on both sides 
the balance-sheet, or the totals will not agree. The General-Ledger is no 
check upon the accuracy of this account. It should therefore be checked 
periodically, by taking off the daily amounts current from the Journal, 
and comparing the total with the balance of " Bills Deposited in the Gen- 
eral-Ledger." 

Some banks distribute their bills deposited into several accounts, as 
"Bills Deposited by Agents," "Bills Deposited by Branches," "Bills 
Deposited by Private Parties," &c, &c. On the debit side of the General- 
Ledger these " bills deposited " are mixed with the bills discounted in 
different accounts, according to the places where the bills are payable, as 
" London Bills," " Manchester Bills," " Branch Bills," &c. Those de- 
posited bills that are payable in the place where the bank is established, 
are usually distinguished from the discounted bills ; one account being 
called " Local Bills Discounted," and the other, " Local Bills Deposited." 

Notes in Circulation. — When the notes are made payable at any 
other place beside the place of issue, this account will only show the 
" apparent circulation," as the notes that have been paid by the agents, or 
at the other branches of the bank, cannot be brought into the account 
until they have been returned for re-issue. I have classed this account 
under the head of Lodgments, because it denotes a portion of the debt due 
from the bank to the public. 

Credits on Agents. — When a bank grants a Bill, or Letter of Credit, 
upon their agents, the money received is placed to the credit of this ac- 
count. When the bill is due, or the credit paid, it is placed to the debit 
of this account, and to the credit of the agent's cash account. The busi- 
ness of some banks requires a subdivision of their credits, as " Credits on 
London Agents," " Credits on Bristol Agents," &c. Some banks have 
also an account for " Credits on Branches " ; but where all the credits 
granted are payable on demand, they are usually placed at once to the 
credit of the cash account of the branch on which they are drawn. 
M 167 



A Treatise on Banking. 

2. Investments. — The accounts belonging to this class are all debit 
accounts ; that is, the balance (if any) is always on the debit side. 

In the foregoing balance-sheet it is presumed that all the bills are pay- 
able in London, as the London bankers do not discount bills payable else- 
where. The division into two accounts is merely to show the comparative 
extent of the town and the country business. The first account includes 
the bills discounted for parties resident in London, and the second in- 
cludes the bills discounted for parties resident in the country. Where the 
bills are payable at different places, they are referred, as I have already 
intimated, to different accounts, as " London Bills," " Bristol Bills," 
" Manchester Bills," &c. It is not usual, in these cases, to distinguish 
between the bills discounted and the bills deposited, but to place them 
together on the same account ; for instance, the account " London Bills " 
would include all bills payable in London, whether discounted or de- 
posited. If thought proper, however, they may be easily divided into 
separate accounts, as "London Bills Discounted," and "London Bills 
Deposited." 

Past-Due-Bills. — When a discounted bill is not paid, it is transferred 
to the debit of this account. " Bills deposited " never pass into this ac- 
count ; but if unpaid, are returned to the parties by whom they were de- 
posited. 

When the bank purchases " Government Stock," " Exchequer Bills," 
" India Bonds," &c, the purchase-money is passed to the debit of an ac- 
count raised for the purpose. Upon re-sale, the account is credited for 
the money received, and the difference between the money invested and 
the money received is passed, at the end of the year, to the debit or the 
credit of profit and loss account. 

Loans. — This account is debited for the amount of any loan granted 
to a customer, or to any other party, on security. When a customer 
wants a temporary advance, the usual way, in London banks, is, not to 
let him overdraw his account, but to place to his credit the sum he may 
require, and debit the loan account. The interest is charged upon the full 
amount of the loan. When the loan is repaid, this account is credited. 

3. Expenditure. — The accounts under this head require little expla- 
nation. " Bank Premises " is debited for the expense of altering, paint- 
ing, &c, the buildings and offices connected with the bank. The other 
accounts are debited for the different classes of expenditure as they occur. 
At the end of the year these accounts are credited, and the several 
amounts are placed to the debit of " profit and loss account." 

4. Cash Account with Branches. — The title of this class of ac- 
counts is sufficiently explanatory. I will only observe, that in some banks 
each branch keeps a distinct cash account with every other branch, and 
with the several agents of the bank with whom it may have transactions. 
But, in other banks, each branch passes all its transactions through its 
cash account with the head office. It debits the head office for whatever 
it may remit to either a branch or an agent, and it credits the head office 
for whatever sums it may receive from a branch or an agent. 

5. Proprietors' Accounts. — This class of accounts refers to the in 
ternal operations of the bank. 

168 



Book-keeping. 

Paid-up Capital. — If the capital has been paid up at different times, 
this account may be divided into " First Instalment," " Second Instal- 
ment," " Third Instalment," &c. 

Preliminary Expenses. — Several joint-stock banks have passed to 
an account of this sort the expense of forming the company ; and these 
expenses are discharged out of the profits, by equal portions, in the course 
of five or ten years. This is considered a more equitable mode than to 
pay these expenses out of the profits of the first two or three years. 

Surplus Fund. — When the whole of the annual profits are not di- 
vided among the partners or proprietors, the surplus is transferred to an ac- 
count, called " Surplus Fund," where it remains for the purpose of being 
applied to meet any losses or contingencies that may occur in after years. 

Profit and Loss. — To the credit of this account is placed all interest 
and commission received ; and to the debit is placed all interest paid. 
These entries are made at the time the transactions occur. At the end 
of the year this account is credited for all the profits that have been made 
during the year upon Government Stock, Exchequer Bills, &c, and is 
debited with the several items of expenditure. The Profit and Loss Ac- 
count may be subdivided into several accounts, as " Interest Received on 
Bills Discounted," " Commissions Received," " Interest paid on Deposit 
Receipts," " Charge for Agency," &c, &c. When it is not thus divided, 
a complete abstract of the account should be made out at the end of the 
year. 

General Account of Cash. — The introduction of this account makes 
the General-Ledger a perfect check upon the other books. For by this 
means the total of all the balances of the debit side of the General- 
Ledger are equal to the total of all the balances of the credit side. To 
the debit of this account is passed, every day, the total amount of the 
credit side of the Day-Book ; and the account is credited for the amount 
of the debit side of the Day-Book ; consequently, the balance of this ac- 
count will be always on the debit side, and will be equal to the difference 
between the sum of all the other debit balances, and the sum of the 
credit balances ; that is, it will show the amount of cash in the bank. 
The General-Ledger is always kept on the progressive plan (see page 
158), so that the balance of any account can be seen upon inspection ; 
and its progress from any past period can be distinctly and readily 
traced. 

VII. — Periodical Balances. 

Daily Balance. — It is well known that bankers try their balance at 
the close of their business every night, with a view of correcting any er- 
rors that may have occurred during the day. The process is very easy. 
If to the amount of the Cash-Book last night, we add the amount of the 
cash received to-day, and deduct the amount of the cash we have paid, 
the remainder will be the amount of the Cash-Book to-night. If, on triai, 
we find this is not the case, there must be some error. Suppose, for in- 
stance, the Cash-Book last night amounted to £ 100,000, and we have re- 
ceived £ 40,000 and paid £ 50,000 to-day, then will the Cash-Book to- 
night amount to £ 90,000. The trial stands thus : — 

169 



A Treatise on Banking. 



Cash-Book last night 
Received-Day-Book 



£100,000 
. 40,000 

£ 140,000 



Paid-Day Book 
Cash-Book to-night 



£ 50,000 
90,000 

£140,000 



The daily balance, therefore, is nothing more than the balance of the 
Day-Book; and the only books employed are the Day-Book and the 
Cash-Book. But as these books, when finally closed, include the amount 
of several other books, the trial is usually made (for the purpose of avoid- 
ing alterations) on a half-sheet of paper, called the trial paper, previous 
to those entries being made, and then the amounts of these several books 
are stated separately, in the following manner : — 



Dr. 



BANKING HOUSE. 



Cr. 



Amount of Cash-Book last night 
[This is usually called the Rest.] 
Do. of Received-Day-Book . 
Do. of Bill-Journal 
Do. of Discount-Journal 



Amount of Paid-Day-Book 
Do. of Clearing- in-Book* 
Do. of Balance * of the Clear 



mg 



Do. of Cash-Book to-night 
Do. of Balance of Money 

Book .... 
Do. of Discount-Register 



The balance of the clearing t is always to the credit of the house ; for, 
if the clearing "takes out," then the bank notes paid away at the 
Clearing-house are entered in continuation of the clearing-out ; so that, 
in this case, the balance is usually thrown a small sum on the other side. 
When the clearing is finally closed, the notes forming this balance are 
entered in continuation of the clearing-in, and subsequently in the Cash- 
Book. The notes entered in the clearing-out are, of course, not entered 
in the Cash-Book. 

Weekly Balances. — The daily balance checks the Waste-Books, 
the Discount-Register, the Journals, the Day-Books, the Lists, and the 
Money-Books. If any errors occur in any of these books throughout the 
day, the balance will be wrong. But the daily balance does not check the 
Current- Account-Ledger, though this is the most important book of all. 
The Ledger is therefore " marked off" every morning against the Day- 
Book, the Bill-Journal, and the Clearing-in-Book : but this is not a suffi- 
cient check. Hence the balances of all the accounts in the Current- 
Account-Ledger should be taken off weekly in a book called the Current- 
Account-Balance-Book, and added together, and the amount made to 
agree with the balance of " current accounts " in the General-Ledger. 
This is usually done by the London bankers quarterly or half yearly. 
When the Ledger is kept on the progressive plan, it may be done weekly 
without much trouble. The " Current- Account-Balance-Book " should 
be ruled so that the names of the parties having accounts may be placed 
under one another at the left-hand, and all the rest of the left-hand page, 
and the whole of the right-hand page, divided into double cash columns : 

* When a bank does not " clear" these items are of course omitted, 
t For an account of the books in the clearing department, see the section on Lon- 
don Bankers. 

170 



Book-keeping. 

one column for the balances of the accounts when in cash, and the other 
for the balances overdrawn. On this plan it will not. be necessary to 
write the names more than once in seven weeks. 

In the same way the balances of the Discount-Ledger should be taken 
off weekly in the " Discount-Balance-Book."' The balances of the 
General-Ledger are also taken off weekly in the " General-Balance- 
Book " in the way I have already described. 

Half-Yearly Balance. — The weekly balancing of the Ledger does 
not preclude the necessity for a half-yearly balance. The usual days for 
balancing are the last days of June and December. Some banks, how- 
ever, balance on the last Saturday in June and December, and others on 
the 30th of June and on Christmas-eve. On the balancing day the fol- 
lowing operations are passed through the books : — 1 . The current ac- 
counts will be debited for any interest or commission that may be due 
from the party to the bank. — 2. The Current- Account-Ledger will be 
balanced, and the balance will be brought down as the commencement of 
the transactions of the ensuing half-year. — 3. The customers 1 books 
must be balanced, and made to agree with the Current-Account-Ledger. 
4. The interest due upon the outstanding deposit receipts must be calcu- 
lated, and the sums added together. — 5. The General-Ledger must be 
balanced, and at the December balance the amount standing to the debit 
of the several classes of expenditure must be passed to the credit of those 
accounts, and to the debit of profit and loss account, and the several 
sums of profit that have been realized upon Government stock, India 
bonds, &c, are transferred to the credit of profit and loss account. 

For each half year a book must be provided to be called the Half- 
Yearly-Balance-Book. This book will contain the following entries : — 

1. A balance-sheet showing the balances of the respective accounts in 
the General-Ledger in the same way as the weekly balance sheet. 
2. A debtor and creditor balance-sheet, showing the exact condition of 
the bank. — 3. An abstract of the profit and loss account, viz : — 



Abstract of Profit and Loss Account, from Jan. 1, to Dec. 31. 



Dr. 



Or. 



To Bank Premises . 
, Furniture . . . 

Rent 

Salaries 

Stationery . . . 

Incidental Expenses 



Total Expenses . . . . 
Loss on bad bills, &c. . . 
Balance in favor of the 
Bank 



By Interest on Bills dis- 
counted 

By Interest on Loans 

By Commission on Cur- 
rent Accounts . . . . 

By Profit on Exchequer 
Bills, &c 



171 



A Treatise on Banking. 

4. A list of all the balances of the current accounts. 

5. A list of all the outstanding deposit receipts, and the interest due 
upon each. 

6. A list of all discounted bills current, i. e. bills not yet due. 

7. A list of all deposited bills current. 

8. A list of all other securities, distinguishing those that belong to the 
bank from those that are lodged by its customers. 

At the end of the year the final balance of the profit and loss account 
is transferred to other accounts according to the purposes to which it is to 
be applied. If intended to be held as a " surplus fund," it is transferred 
to that account. If intended to be divided among the proprietors, it is 
transferred to a " dividend account," which is raised for that purpose. If 
the balance of the profit and loss account should be against the bank, then 
it must remain " on the wrong side " until further profits shall turn the 
balance the other way. 

Besides the books connected with the business of banking, every joint- 
stock bank will require, 

1. A Shareholders'-Register. — In this book the names of the 
shareholders are entered chronologically in the order in which they be- 
come shareholders. The entry includes the date, the name, residence, 
number of shares, and sum paid. 

2. Transfer-Register. — In this book are entered the transfer of 
shares from one proprietor to another. The entry includes date of trans- 
fer, from whom transferred, residence, ledger-folio, to whom transferred, 
residence, purchase-money, and transfer stamp. 

London, the . . day of . 18 

To the Directors of Banking Company. 

Gentlemen, 

Please to prepare the necessary document for transferring . . Shares, from 

the name of of 

to of 

the consideration for which .... Shares is £ 

Broker, 

of 

If a proprietor in a joint-stock bank wishes to dispose of his shares, he 
directs a stock-broker to sell them in the market. After the sale the 
broker gives notice to the directors of the bank in the preceding form. 
The deed of transfer is then made out according to a printed form pre- 
pared by the bank. This agreement is liable to a stamp duty, varying 
according to the amount of the purchase-money. When shares are trans- 
ferred for a nominal consideration, say five or ten shillings, the stamp 
duty is thirty shillings. 

The debtor and creditor balance-sheet will contain the same amounts 
as the balance-sheet of the General-Ledger (see page 166), but differ- 
ently arranged. They may be disposed according to the following 
form : — 

172 



Book-Keeping. 



Statement of the Affairs of the BanJc, 



Dr. 



THE 



BANKING COMPANY. 



Cr. 



Due to the Public on 
Current Accounts. 

Head Office, Town . . 
Ditto, Country . . . 

Branch A 

Branch B 

Branch C 

Total Current Accounts . 



Deposit Receipts. 

Head Office .... 

Branch A 

Branch B 

Branch C 

Total Deposit Receipts 



Notes in Circulation 
Credits on Agents . 

Total Lodgments . 



Interest Account. 

Head Office 

Branch A 

Branch B 

Branch C 

Total Amount of Interest. 



Fund for Bad Debts. 

Head Office 

Branch A 

Branch B 

Branch C 

Total Amount of Fund ) 
for Bad Debts . . < 



Paid-up Capital 
Sundry Accounts. 



Forfeited Shares 
Dividends. . . 
Unclaimed ditto 
Surplus Fund . 
Profit and Loss . 



Total Sundry Accounts 
Total . . . 



Due to the Bank on 

Overdrawn Accounts. 

Head Office, Town . . 

Ditto, Country . . 

Branch A 

Branch B 

Branch C 

Total Overdrawn Acct's. 

Bills Discounted. 
Head Office, Town . . 

Ditto, Country . . 

Branch A 

Branch B 

Branch C 

Total Amount of Bills ) 
Discounted . . . $ 

Loans. 
Head Office .... 

Branch A 

Branch B 

Branch C 

Total Amount of Loans 

Investments. 
Government Stock . . 
Exchequer Bills . . . 
India Bonds .... 
Other Investments . . 

Total Investments . . 

Total available Assets . 

Expenditure. 
Head Office .... 

Branch A 

Branch B 

Branch C 

Total Expenditure . . 

Past- Due Bills. 
Head Office .... 

Branch A 

Branch B 

Branch C 

Total Amount of Past- ) 
Due Bills . . . . S 

Sundry Accounts. 
Stamp Account . 
House Account . 

Ditto Branch A. 

Ditto Branch B. 

Ditto Branch C. 



Total 

General Account of 

Cash. 
Head Office .... 

Branch A 

Branch B 

Branch C 

Total amount of Cash . 
Total . . . 



173 



A Treatise on Banking. 



The following is the scale of stamp duties upon the transfer of shares 
in joint-stock banks : — 

When the purchase money is under £ 20 



For £ 20 and under 
50 

150 

300 

500 

750 
1,000 
2,000 
3,000 
4,000 
5,000 
6,000 
7,000 
8,000 
9,000 



50 

150 

300 

500 

750 

1,000 

2,000 

3,000 

4,000 

5,000 

6,000 

7,000 

, 8,000 

9,000 

10,000 



£0 


10 


1 





1 


10 


2 





3 





6 





9 





12 





25 





35 





45 





£5 





65 





75 





85 





95 






The bank charges a fee of one shilling per share upon five shares or 
above for making the transfer, and two shillings and sixpence per share 
for any number less than five shares. Where there is no pecuniary con- 
sideration the charge is ten shillings for each transfer. 

3. Proprietors' Ledger. — In this ledger each proprietor has an ac- 
count open, in the same way as in a cash-ledger. He is credited for the 
number of shares ; and an entry is made of the different instalments he 
may pay. When he sells or transfers his shares, he is debited the shares, 
and they are placed to the credit of the party who may have purchased 
them. The entry includes the date, number of register, calls and trans- 
fers, number of shares, and amount. 

III. We shall now consider those improvements of which the above 
system is capable, so as to render it more efficient in large establish- 
ments. 

As a bank increases its business, it becomes of importance to improve 
its system of book-keeping, and to adopt means of increasing the effi- 
ciency of its clerks. A large establishment can generally be conducted 
with a less proportionate number of hands than a small one. It admits 
of a more extensive application of the principle of a division of labor. 
In a small bank, one clerk may keep two or three books of various kinds, 
or perhaps act as both cashier and accountant. But in a large bank, each 
clerk is in general kept wholly to one employment. The effects of this 
separation of occupations is the same in banks as in manufactories ; and 
the description of these effects given by Adam Smith will equally apply 
to both cases. 

" The great increase in the quantity of work which, in consequence of the division 
of labor, the same number of people are capable of performing, is owing to three dif- 
ferent circumstances ; first, to the increase of dexterity in every particular workman ; 
secondly, to the saving of time which is commonly lost in passing from one species of 
work to another ; and lastly, to the invention of a great number of machines which 
facilitate and abridge labor, and enable one man to do the work of many." 

The increase of dexterity by constant practice is very observable in 

174 



Book-keeping. 

the practice of " casting up." A clerk who is much accustomed to this 
operation will cast up a long column of figures with singular quickness 
and accuracy. It is also very observable in " calling over." Besides, 
owing to the abbreviations we have mentioned in p. 152, a clerk in call- 
ing over will speak so rapidly that an unpractised ear will hardly be able 
to follow him. Mr. Babbage gives the following instance of great dex- 
terity acquired by practice : — 

" Upon an occasion when a large amount of bank notes was required, a clerk in the 
Bank of England signed his name, consisting of seven letters, including the initial of 
his Christian name, five thousand three hundred times during eleven working hours, 
and he also arranged the notes he had signed in parcels of fifty each." 

The loss of time in passing from one operation to another is as obvious 
in mental processes as in those which are purely mechanical. 

" When the human hand or the human head has been for some time occupied in any- 
kind of work, it cannot instantly change its employment with full effect. The muscles 
of the limbs employed have acquired a flexibility during their exertion, and those to 
be put into action a stiffness during rest, which renders every change slow and unequal 
in the commencement. A similar result seems to take place in any change of mental 
exertion ; the attention bestowed on the new subject is not so perfect at the first com- 
mencement as it becomes after some exercise." * 

The invention of expedients for facilitating and abridging labor is also 
as common in a bank as in a manufactory. 

Mr. Francis has recorded, in his History of the Bank of England, a 
variety of improvements introduced into that establishment by Mr. William 
Rae Smee, a son of the chief accountant. 

He proposed an alteration in the cheque office, by which he stated that 
the work which employed three principals and twenty-one clerks would be 
done more effectually by two principals and seven clerks. In the circula- 
tion department, the posting which formerly took fifty now employs only 
eight clerks. And the whole of that department, if now conducted upon 
the old system, would probably require nearly eighty additional assistants. 
In the National Debt Office Mr. Smee introduced such measures that 
" the directors were enabled so far to consult the accommodation of the 
public as to enable the transfers in the various offices to be made eight or 
nine days later than usual, the business which formerly occupied about 
thirty-two days being accomplished in about twenty-three." t 

Similar improvements have been introduced into commercial book- 
keeping. 

" The old method of journalizing and posting each transaction separately, unneces- 
sarily swells the accounts in the ledger with a multiplicity of figures, which* greatly in- 
creases the difficulty of balancing, and, to say nothing of extra labor and loss of time, 
the liability to error is always in proportion to the number of entries, and vice versd. 
If a hundred sums are posted when one would answer, then a hundred chances of 
error are incurred where only one was necessary ; and in the event of an error in ad- 
justing the accounts, a hundred entries must be called over and examined, instead of 
one. (Double Entry Elucidated, by B. F. Foster, p. 18.) 

* The Economy of Machinery and Manufactures, by Charles Babbage. 
t History of the Bank of England : its Times and Traditions ; by John Francis. 
Vol. II. p. 141. 

175 



A Treatise on Banking. 

The expedients introduced to improve any system of book-keeping 
have for their object either the saving of time directly by abbreviating the 
entries, or to save time indirectly by new modes of preventing or detect- 
ing errors. And it may be observed, that a minute alteration, hardly 
worthy of being adopted in a small bank, where it would save but a few 
minutes a day, may be very properly adopted in a large establishment, 
where the time saved would be in proportion to the greater extent of 
business. Sometimes an entry may be shortened by omitting some of the 
particulars. Thus, where we have been accustomed to enter with every 
bill, the name of the last endorser, the drawer and his residence, the ac- 
ceptor and his residence, the date, term when due, and the amount, we 
may properly, perhaps, omit some of these items. Or where we have re- 
peated the same entry in several books, we may enter it in fewer books, 
or, perhaps, make the individual entries in only one book, and enter the 
total amount in the others, or, at other times, the whole form of a book 
may be changed, and we may, by a new arrangement, obtain the same 
results more clearly and in less time. Almost every bank will occasion- 
ally make some alteration of this kind as its business may require. And 
even each accountant has usually some little expedients of his own for 
facilitating his daily operations. We will notice a few of those amend- 
ments that have been adopted with the view of saving time and labor in 
some of our banking establishments. 

Some large banks have adopted " the horizontal system of book-keep- 
ing," which is in some respects an improvement on the systems described 
in the former editions of this work. The chief difference is in the mode 
of ruling the Received and the Paid- Waste-Books. 

The Received- Waste-Book, instead of being ruled as described in 
p. 155, has four cash columns, three at the left hand as you face the 
book, and the fourth at the right hand, with a space between the third and 
the fourth. The different items of a credit entry, instead of being placed 
under one another, as in the former system, will be placed separately in 
the first three columns, and the total in the fourth column. Thus, if a 
sum of £ 543 10s. Id. be received from Mr. Smith, and this sum con- 
sists of £ 3 10s. Id. in coin or money, £ 100 in a Bank of England 
note, and <£440 in a cheque on Jones, Loyd, & Co., the entry will stand 
thus : — 



Money. 


Bank 
Notes. 


Sundries. 


Name. 


Total. 


£ 
3 


s. 
10 


d. 

7 


£ 
100 


£ 
440 


s. 



d. 



Smith. 
Jones, Loyd, & Co. 


£ 
543 


s. 
10 


d. 

7 



Thus it is seen that the first column is for money, the second column 
for bank notes, and the third column for " sundries," that is, for all other 
articles ; and these three columns are added together " horizontally," and 
the total brought out into the fourth cash column at the right hand. It 
will be observed, that the cashier has to add the items together, not long- 

176 



Book-keeping. . 



ways, but cross-ways, — not longitudinally, but " horizontally." After a 
little practice, one way is just as easy as the other. 

Some cashiers prefer having two columns only at the left hand, and 
two at the right hand, with the space between the second and third co- 
lumn ; as the numbers of the bank-notes, and the names of the bankers 
on whom the cheques are drawn, can then be placed on the same line ; 
but this is not a matter of much consequence. 

Now, if you " cast up " the first left-hand column, you will have at the 
close of the day the total amount of money, that is, coin, received during 
the day. If you cast up the second column, you will have the total 
amount of bank notes. The third column will give the total amount of 
" sundries." And the amount of these three columns together will be 
equal to the fourth column, containing the total amount of the credits. If 
this should not be the case, there must be some error, which must be dis- 
covered forthwith. Thus the horizontal Received- Waste-Book is a check 
upon itself. As soon as the cashier gets to the bottom of a page, he casts 
up his book, and sees that the three columns are exactly equal to the 
fourth. Thus he keeps his book right as he goes on. Whereas, in the 
former system, any error in the Received-Waste-Book would not be dis- 
covered till the General Balance was tried at the close of business, and 
not then, perhaps, until after a long course of " marking off." 

To simplify my explanation, I have described the Received-Waste- 
Book as having only four cash columns, and these are perhaps enough for 
a small bank. But large establishments have sometimes seven or eight, 
perchance in the following order : — 1. Money, that is, coin. 2. Bank- 
notes. 3. Parcels of bank-notes, called sundries. 4. Country notes. 
5. Checks on clearing bankers. 6. Checks on bankers who do not clear. 

7. Checks on our own bank. a space. 8. The total amount of 

the credit. 

The horizontal Paid- Waste-Book is ruled with three cash columns ; 
one to the left for the amount of the cheque paid ; then an open space for 
the name ; then a column for the bank-notes ; and another for the money, 
that is, coin. The London bankers do not pay away any bills or country 
notes in exchange for cheques, but only Bank of England notes and coin. 
The entry stands thus : — 



Amount of 
Cheque. 


Name, and No. of Bank-Note. 


Bank 
Notes. 


Money. 


£ 
101 


s. 
4 


d. 
3 


White. 1473. 


£ 
100 


£ 

1 


s. 
4 


d. 
3 



The amount of the columns containing the bank-notes and the money 
will of course be equal to the column containing the amount of the 
cheques. And thus this Paid-Waste-Book contains a check upon itself. 

The horizontal Paid- Waste-Book may have at the left hand two cash 
columns, one for the town and the other for the country departments, and 
also a separate column for the country notes ; thus : — 

177 



A Treatise on Banking. 



Town. 


Country. 


Country 
Notes. 


Name. 


Bank 
Notes 
Paid. 


Money. 



























This prevents the necessity for having both a Town and a Country Paid- 
Waste-Book, while the two departments are still kept distinct. The 
country notes are also separated, and can be checked by themselves. 
When all are added together, "the total of the three columns at the left 
must be equal in amount to the total of the two columns at the right hand. 
The articles paid must be equal to the bank-notes and money which were 
issued in payment. 

We shall now point out some of the advantages of the horizontal sys- 
tem of keeping the Waste-Books. 

First. As all the receipts and payments of money, that is, coin, are en- 
tered individually in the Received and Paid Waste-Books, and the 
amounts added together, it will not be necessary that these sums be 
copied individually into the Money-Book. The total amount only of each 
column is entered in the Money-Book at the close of the day's business, 
and the Money-Book is balanced. Thus, all the time employed in mak- 
ing the entries individually in the Money-Book is saved. 

Secondly. As all the credits to current accounts are added together in 
the Received- Waste-Book, it is not necessary they should be entered in- 
dividually in the Day-Book. They can be individually posted direct into 
the Ledger, and the total only be entered in the Day-Book. The same 
remark will apply to the Paid-Waste-Book. This is another saving of 
time and labor. 

Thirdly. Every Waste-Book, as we have already intimated, is a check 
upon itself. We have spoken of a Received- Waste-Book and a Paid- 
Waste-Book as though a bank had but one, and in small banks this is the 
case. But in large banks there are seven or eight cashiers or more, each 
having a Received- Waste-Book and a Paid- Waste-Book for the town de- 
partment, and another Received- Waste-Book and Paid- Waste -Book for 
the country department, with a Supplementary-Received-Waste-Book, and 
a Supplementary-Paid- Waste-Book, and a Money-Book besides. Now, it 
is a great advantage to have the means of keeping all these books free 
from errors during the day, and to know at night that they are all correct. 
If the " Balance " be wrong, the field of inquiry is thus very much limit- 
ed, and the time that would otherwise .be employed in checking the Waste- 
Books is devoted to the examination of the other books of the bank. 

Fourthly. This plan gives the means of checking separately those 
items that have a column appropriated to them. Take, for example, the 
column of Bank-notes. If we add to the amount of bank-notes on hand 
last night the amount received to-day, and deduct the amount paid away, 
the remainder should be the amount on hand to-night. When this is the 
case, the bank-notes are right. In the same way we may check the 

178 



Book-keeping. 

money columns, the clearing columns, &c. Thus, when the trial balance 
is wrong, we can check these items separately, and thus more readily dis- 
cover the error. Without this expedient, we should have to " mark off" 
the whole business of the day. 

It will be observed that the above Waste-Books refer only to receipts 
and payments on current accounts. All other receipts and payments are 
entered in a Supplementary-Receipt-Book and a Supplementary-Paid- 
Book. These books are ruled in the same way as the other Waste-Books, 
and they embody entries in connection with deposit receipts, received or 
paid, credits or debits to interest accounts, debits to salaries, taxes, inci- 
dental accounts, &c., &c. All these items are then entered in the Day- 
Book, from whence they are posted into the General-Ledger. A book is 
also provided, usually called a Transfer-Book, in which are entered all 
the cheques on the bank paid in by other customers, as these merely 
cause a transfer of the amount from one customer to another. 

Books which are designed chiefly as registries or summaries should be 
kept on the horizontal system. Thus, a London bank which keeps an ac- 
count with the Bank of England, will have to lodge to its credit notes, 
gold, silver, post-bills, cheques, dividend warrants, &c. 

To keep a registry of this, a book may be opened horizontally, — the 
first column at the left hand being the date, and then these words being 
entered over separate columns, at the top of the page ; afterwards a col- 
umn for the total amount of all these items, then a credit column for the 
cheques drawn each day, and then the daily balance. If this book be 
made of such a size as to contain about thirty lines, then each page will 
contain the transactions of a month. And, by adding up the columns, the 
figures at the bottom of the page will show the separate amounts of notes, 
gold, silver, &c, paid into the Bank of England in the course of a 
month. By comparing the different pages, it will be seen on what 
months the largest or the smallest sums are paid into the bank. 

In constructing tables, it is also best to follow the horizontal system. 
Thus, to keep a record of the weekly returns of the Bank of England, it 
is best to arrange the items into columns, with the heading at the top of 
each column, the first column containing the dates of the several returns. 
It will then be easy to trace the fluctuations in any one item ; such, for 
instance, as the " Public Deposits," the " Private Deposits," the " Rest," 
&c. Some of the Returns published in the Appendix to the Parlia- 
mentary Evidence of 1847 have been arranged on this principle. 

We will now notice some further improvements that have sometimes 
been adopted by large banks in their system of book-keeping. The great 
object of all these improvements is, as we have already mentioned, either 
to save time directly, in making the entries, or indirectly, by preventing 
or discovering errors. These are, — 

1. The abolition of the Discount-Register. Here the bills are entered 
at once in the Discount-Ledger, under the names of the respective parties 
for whom they are discounted ; and the total amount of bills discounted 
each day is entered in the Day-Book, from the Interest-Book, which con- 
tains the calculations of discount. The only objection to this plan is, that 
the space in the Discount-Ledger does not admit of so full a description 

179 



A Treatise on Banking. 

of the bill as is usually given in the Discount-Register. The Bill-Register 
is also abolished in the same way. 

2. The adoption of a Check-Ledger facilitates the discovery of errors, 
and thus diminishes the time employed in searching for them. Though 
this book is called a Check-Ledger, it is not kept ledger-wise. It is ruled 
with a cash column on each side the page. In the column opposite your 
left hand you enter, from the cheques themselves, all the cheques paid 
during the day. In the right-hand column you enter from the Received- 
Waste-Books all the credits of the day. When you add up these two 
columns, they will of course agree with the amounts of the Paid- Waste- 
Book and the Received- Waste-Book. Thus the accuracy of the Check- 
Ledger is insured. Now, where the balances of the Current- Account- 
Ledger are checked every week, you employ the Check-Ledger to test 
their accuracy in this way. If to the amount of the balances of the Cur- 
rent-Account-Ledger last week, you add the total credits entered in the 
Check-Ledger during the week, and deduct the total debits entered in the 
Check-Ledger during the week, the remainder will show the total amount 
of the balances of the Current-Account-Ledger for the present week. 
Each Current- Account-Ledger will have a Check-Ledger, and thus each 
Ledger will be checked separately, so that when the total balance is 
wrong, it will at once be seen in which Ledger the error has occurred. 

Time is sometimes lost by a clerk taking up the wrong book, opening 
it, putting it down, and then taking up the right one. A cashier, for in- 
stance, will sometimes take up the Paid-Waste-Book instead of the Re- 
ceived-Waste-Book. To prevent this, the two books may have covers of 
different colors, — one white, the other green. Time may be lost by two 
clerks wanting the same book at the same time. The ledger-keeper may 
want to post from the Received- Waste-Book when the cashier is using it. 
To prevent this, there may be two sets of Waste-Books, — one for Mon- 
days, Wednesdays, and Fridays, and the other for Tuesdays, Thursdays, 
and Saturdays ; and, to prevent mistakes, the names of the days should 
be written in large letters on the covers of the books. 

IV. We will now make a comparison between the system of Book- 
keeping practised by Merchants, and that practised by Bankers. 

The merchants have their Waste-Book, Journal, Ledger. The bank- 
ers have their Waste-Book, Day-Book, Ledger. 

In both cases, the Waste-Book is the book in which transactions are 
first entered. But this book is capable of subdivision : it contains a record 
of various transactions, some of which may be entered in separate books. 
Bankers have their Received, Paid, and Supplementary Waste-Books ; 
also their Deposit-Receipt-Book, Discount-Registers, and other books sub- 
sidiary to the Waste-Book. So, merchants have their Waste-Book sub- 
divided into various books, according to the nature of the transactions. 
There is the Invoice-Book, containing an account of all goods purchased ; 
the Sales-Book, containing an account of all goods sold; a book for 
" Bills Receivable," containing a list of all bills in the merchant's hands, 
which when due he will receive ; another for bills payable, containing a 
list, of all bills he has accepted, and which when due he will have to pav 

180 



Book-keeping. 

a Cash-Book, containing an account of all cash he receives or pays away ; 
and several others, varying according to the character and extent of the 
business. Now all these subdivisions of the merchant's Waste-Book re- 
semble those of the banker's in two things — first, they are all kept chro- 
nologically — they contain a record of the transactions in the order , of 
time in which they occurred : and, secondly, all the transactions thus re- 
corded must afterwards, upon the system of double entry, pass, either 
individually or in totals, through the book which merchants call a Journal, 
and bankers call a Day-Book. * 

The words " Journal " and " Day-Book " have the same meaning ; 
and in this instance the use of the two books is similar. But in the mer- 
chant's Journal individual transactions may be entered, while in the bank- 
er's Day-Book they are always entered in totals. Thus the total amount 
of " Bills Discounted," and the total amount of credits and payments on 
current accounts, are entered in the Day-Book, but not the individual 
items. Another difference is, that over each entry in the merchant's 
Journal you state to what account it is to be posted ; for every entry is 
posted to two accounts — to the debit of one account, and to the credit of 
the other. And this is denoted by Dr. being placed before the name of 
the account to be debited. Thus, if a merchant buys some goods for 
ready money, the Journal entry is preceded by 

Goods Dr. to Cash ; 

implying that the account " Goods " is to be debited, and the account 
" Cash " to be credited. On the other hand, if he sells goods for ready 
money, the transaction will be journalized thus, 

Cash Dr. to Goods. 

If he sells goods upon credit to John Brown, it will be, 

John Brown Dr. to Goods. 

If he sells goods for a bill of exchange, it will be, 

Bills Receivable Dr. to Goods. 

If he sends goods abroad as a speculation, in the ship Adventure, he may 
raise an account for the ship, and say, 

Ship Adventure Dr. to Goods. 

The entries in the banker's Day-Book are made daily, but the entries 
m the merchant's Journal are generally made once a month. 

The Ledger. — We have stated that in the merchant's Ledger every 
entry is made twice — one account being debited, and another credited — 
and these two accounts are indicated in the Journal. This is what is 
called book-keeping by double entry. If it be asked, whether bankers 
keep their books by double entiy ? the answer is, that those bankers 
who have no General-Ledger (and this is the case with not a few of the 
private bankers) do not keep their books by double entry. The Current- 
Account-Ledger is not kept by double entry. It contains none but per- 
sonal accounts, and its accuracv is tested only by the periodical balancings. 

J81 



A Treatise on Banking. 

The banker's Ledger, that corresponds in this respect with the merchant's 
Ledger, is not the Current-Account-Ledger, but the General-Ledger. 
This is kept by double entiy. In a ledger kept by double entry, the sum 
of all the debit balances will be equal to the sum of all the credit bal- 
ances ; and the sum of all the debit amounts will be equal to the sum of 
all the credit amounts. When this is not the case there is an error in 
some of the accounts. This is the case with the banker's General- 
Ledger. But, as the transactions are not posted individually, but only in 
totals, the double entry does not appear on the face of the accounts. 
Thus, if a bill be discounted for a customer, and the amount placed to 
the credit of his current account, the Journal entry, on the principle of 
mercantile book-keeping, would stand thus : — 

Bills Discounted Dr. to Current Accounts. 

But the bill discounted is placed to the debit of the account of " Bills Dis- 
counted," in a total of all the bills discounted on that day. And the 
amount is placed to the credit of Current Accounts, in the total of all the 
sums received to the credit of Current Accounts on that day. Thus, the 
"double entry," though equally real, is not so apparent as though the 
transactions were posted individually. 

So, again, if a country banker should discount a bill, and the customer 
ask for a draft on his agent in London, the Journal entry, on the com- 
mercial system, would stand thus : — 

Bills Discounted Dr. to Drafts on London. 

It would go to the debit of u Bills Discounted," in the total of all the bills 
discounted that day, and it would go to the credit of " Drafts on London," 
in the total of all the drafts on London issued on that day. 

The accounts in a merchant's ledger are usually classified into Per- 
sonal Accounts, Real Accounts, and Profit and Loss Accounts. The 
Personal Accounts are the accounts of persons who may owe the mer- 
chant money, or to whom he may owe money. The Real Accounts are 
accounts denoting property, such as cash, bills receivable, bills payable, 
merchandise, ship adventure, &c. The Profit and Loss Accounts are 
rent, commissions, expenses, and all other accounts which are ultimately 
transferred to the debit or the credit of the Profit and Loss Account. 

The banker's General-Ledger has no Personal Accounts, as these are 
all kept in the Current- Account-Ledger. The usual accounts are those I 
have enumerated in page 166, and are all either Real Accounts or Profit 
and Loss Accounts. 

It would be quite possible (but not desirable) to introduce all the Per- 
sonal Accounts into the banker's General-Ledger, and thus to form the 
Current- Account-Ledger and the General-Ledger into one, and keep the 
whole by double entry. In this case we should omit the totals of Current 
Accounts, now introduced into the General-Ledger, and insert every 
transaction individually. If John Brown drew a cheque on the bank, the 
Journal entry would stand thus : — 

John Brovm Dr. to Cash. 
182 



Book-keeping. 

And if he paid in money to his credit, the Journal entry would stand 
thus : — ' 

Cash Dr. to John Brown. 

All the entries passed to the Dr. and Cr. of these Personal Accounts 
would of course pass to the Cr. and Dr. of Cash. Indeed, all the entries 
to the Dr. and Cr. of Cash would be the same as are now made in the 
Check-Ledger, except that the debtor column would be called creditor, 
and the creditor column would be called debtor. By the use of such a 
Check-Ledger as we have described, page 179, (for there are various 
kinds of Check-Ledgers,) the Current Accounts are virtually kept by 
double entry ; and we have the additional advantage that, when there are 
more than one Ledger, we are enabled to check each Ledger separately. 

To accountants in banks where a General-Ledger is not kept, it appears 
strange that " Cash " should be credited for money which is paid away, 
and debited for money which is received. But this strangeness will 
banish, if for the word " Cash " they would fix in their mind the word 
14 Cashier." If they had an account with a cashier, they would of course 
debit him, as they do their banker, for all moneys they paid into his hands, 
and credit him for all moneys they drew out. And the difference between 
the amounts of these debits and credits would be the balance either in 
their favor, or against them. 

In thus comparing the commercial and the banking systems of book- 
keeping, I have hitherto supposed that all merchants keep their books by 
double entry. But this is not always the case with the smaller houses. 
And then their system more nearly resembles the system of those bank- 
ers who do not keep a General-Ledger. 

" In keeping books by single entry, the Daily-Books are kept in the 
same manner as in double entry, with the exception of a column of ref- 
erence to the Ledger in each book, which takes the place of a column of 
reference in the Journal — this book being dispensed with. The entries 
are posted directly from the Daily-Books into the Ledger. In the Ledger, 
by single entry, strictly speaking, there ought to be only one kind of ac- 
counts ; namely, Personal Accounts, including all persons to whom a 
merchant becomes indebted, and all persons who become indebted to 
him." (Wallace 's Pocket- Guide to Commercial Book-keeping.) 

It will be seen from this account, that, in mercantile book-keeping by 
single entry, the merchant's Ledger resembles the Current-Account- 
Ledger of the banker. In single entry the merchant dispenses altogether 
with his Journal ; but the banker usually retains his Day-Book, even when 
he does not keep a General-Ledger. But, in this case, the Day-Book 
contains only the debits and credits, individually, of the Current Ac- 
counts, which are posted afterwards into the Current-Account-Ledger. 
In the horizontal system, as we have stated, the debits and credits of the 
current accounts are not entered individually in the Day-Book, but the 
total amounts are taken from the Paid and Received Waste-Books. 
N 183 



A Treatise on Banking. 



Section XIII. — BANKING CALCULATIONS. 

When a bill is discounted, the party is credited for the full amount, and 
debited for the interest. The interest is calculated from the day on which 
the bill is discounted to the time it falls due. The shortest way is to 
make use of an interest book ; but if it be done with the pen, the follow- 
ing rule may be useful. Multiply the amount of the bill by the number 
of days. To the product add one third of itself, one tenth of that third, 
and one tenth of that tenth. From the total strike off four figures to the 
right for decimals. This will give the interest at 5 per cent., in pounds 
and decimal parts of a pound. The decimals are to be brought into 
shillings and pence, by multiplying by twenty and twelve. The interest 
of any sum at a different rate per cent, may be found in the same way, 
if you multiply the principal by twice the rate of interest, and strike off 
five figures for decimals instead of four. 

Example. — It is required to find the interest of £ 500 for ninety days 
at 5 and 3£ per cent. 

£ £ 

500 principal. 500 principal. 

90 number of days. 7 twice the rate of interest 



l-3d 45,000 3,500 

l-10th 15,000 90 number of days. 

l-10th 1,500 

150 l-3d 315,000 
l-10th 105,000 



6-1650 l-10th 10,500 

20 1,050 



33300 431550 

12 20 



3-9600 631000 

12 

Answer — £6 3s. 3c?. at 5 per cent. 

" £ 4 6s. 3c?. at 3£ per cent. 3-72000 

It must be observed, however, that this method of calculation is not 
exactly correct ; it produces nearly a farthing too much on every 10/. of 
interest. In calculating large sums, therefore, the amount of these far- 
things must be deducted. 

This mode of calculation is founded upon the rule, that whenever you 
have to divide by any number under 100, you may divide by 100 ; after 
having added to the dividend such a proportion of itself as the difference 
between the divisor and 100 bears to the divisor, the result will be the 
same as though you had divided in the usual way. This rule is best ex- 
plained by an example. 

Suppose you have to divide 2,500 by 40. Now if 40 be subtracted 
from 100, there will remain 60. The proportion which 60 bears to 40 is 
\\. If then you add to the dividend 1| times itself, and aivide by 100, 
you have the quotient required ; thus — 

184 



Banking Calculations. 

2500 
2500 
1250 

62-50 Answer, 62£. 

Now then, to find the interest upon any sum for one day, you may di- 
vide by 7,300, or, striking off the ciphers, by 73. The number required 
to make up 100 is 27. What is the proportion between 27 and 73 ? If 
If you take the third of 73, a tenth of that third, and a tenth of that tenth, 
you have something more than 27. And if you add to 73 one third of 
itself, one tenth of that third, and one tenth of that tenth, you will have 
100^, which divided by 100 will give l Wt fa%. As the proportion is not 
exact, the interest given by the above rule will always be io,oo<5 m P art t0 ° 
much, which is about a farthing in every £ 10 interest. 

In taking the interest for any number of months, it will be useful to re- 
member that the interest of £ 1 for one month at 5 per cent, is Id. Thus 
the interest of £ 100 for two months is twice a hundred pence, or 16s. Sd. 
The interest upon shillings and pence is never taken into the account. 
If the fraction is more than 10s. it is regarded as £ 1 ; and if it be less, 
it is not noticed. 

The interest for any number of months, at any rate per cent., may be 
found by multiplying the number of months by the rate of interest : with 
this sum divide 1,200. By this quotient divide the principal, and you 
have the interest required. 

Example. — What is the interest of £ 10,000 at 4 per cent, for three 
months? 4 multiplied by 3 gives 12 — divide 1,200 by 12, and you 
have 100; then divide 10,000 by 100, and you have £ 100, the interest 
required. 

To find the interest of any sum of money at 6 per cent, for any num- 
ber of months. This and the subsequent rules may be found illustrated 
in Crossley^s Intellectual Calculator, in Fryers Mental Arithmetic, and 
in similar works. 

Rule. — Multiply the number of pounds by the number of months, cut 
off the unit figure, and the remainder is the answer in shillings. The 
unit figure multiplied by \\ will give the pence. 

Example. — What is the interest of £ 13,476 10s. 8d. for 6 months 
at 6 per cent, per annum ? 

£ s. d. 
13,476 10 8 



20) 80,859 4 
404 • 5 • 10 



. Having obtained the interest of any sum at 6 per cent., it is easy to 
find the interest at 1|, 2, 3, or 4 per cent by taking ^, J, J, or § the in- 
terest, as the case may be. 

To find one year's interest at any rate per cent. 

Rule. — Multiply the money lent by double the rate per cent., reject 
the unit figure, and you have the answer in shillings. 

185 



A Treatise on Banking. 

Example. — What is the interest of <£27 10s. for one year at 3 per 
cent. ? 

£ s. 
27 10 

6 double the interest. 



165 
12 



60 Answer, 16s. %d. 

To find the interest of any sum of money at 5 per cent, for any num- 
ber of months. 

Rule. — Take the pounds as pence, and multiply by the months. 
Example. — What is the interest of ^120 at 5 per cent, for 8 months ? 



s. 
120 pence = 10 

8 number of months. 



£4 Answer. 

To find the interest of any number of days at 5 per cent. 

Rule. — Multiply the days by one third of the pounds, or the pounds 
by one third of the days, reject the unit figure, and you have the answer 
in pence. — N. B. As this rule is founded on the assumption that the 
year consists of only 360 days, you must deduct one penny from every 
six shillings of interest. 

Example. — What is the interest of .£120 for 21 days at 5 per cent. ? 

£120 Or 21 days. 

7 = J of 21 days. 40 = $ of the pounds. 

12) 84,0 12) 84,0 

7 shillings. Answer. 7 shillings. Answer. 

There is often a difference in the amount of interest according to the 
method of calculation, either by months or by days. A month from the 
10th of February to the 10th of March, is only 28 days ; but from the 
10th of March to the 10th of April, a month is 31 days. The half year 
from the 1st of January to the 30th of June, is 181 days ; but from the 
1st of July to the 31st of December, the half year is 184 days. The 
interest of £ 10,000 for 6 months is .£250 ; for 181 days it is only £ 247 
18s. lid. ; for 184 days it is £ 252 Is. Id. Mr. Reader has published a 
series of Time Tables, showing the number of days from every day in 
the year to any other day in the year. 

Interest tables, calculated at any rate of interest, may occasionally be 
employed to ascertain the interest on any sum at a different rate. This 
is done by taking that proportion of the principal, or of the time, which 
the given rate of interest bears to the rate of the interest tables. For 
example, if it be necessary to ascertain the discount on a bill of £ 100 
for 50 days at 4 per cent., and you have interest tables calculated at 
5 per cent., you may take either four fifths of the time or four fifths of 
the amount. For, the interest of £ 100 for 40 days, or the interest of 

186 



Banking Calculations. 

£ 80 for 50 days, at 5 per cent., is equal to the interest of £ 100 for 50 
days at 4 per cent. 

When a bill is discounted, bankers charge interest on the full amount 
of the bill, and take it at the time. Thus, if a bill be discounted at 5 per 
cent., they will obtain more than 5 per cent, on the money actually ad- 
vanced. This is allowed by law, and is not liable to be set aside on the 
ground of usury. Should it be necessary in other cases to allow discount 
or rebate, the mode of calculating it would be thus : — 

Example. — What is the rebate at 5 per cent, on a sum to be received 
a year hence ? Then, as 105 is to 100, so is 100 to the sum required. 

105 : 100 : : 100 Answer £95. 4s. 9£d. 
100 



105) 10,000 (95 
945 

550 
525 

25 
20 

105) 500 (4 
420 

80 
12 

105) 960 ( 93 
945 

15 

When you have to find the interest of a large sum for one day, you 
may strike off two figures from the right hand, and take the interest of 
the remainder for 100 days. Thus, if you have to find the interest of 
.£47,863,47 for one day, take the interest of <£ 47,863 for 100 days, 
then take the interest of £ 47 for one day, and add the two sums 
together. The interest of £ 1 for 100 days is the same as the interest 
of ,£100 for one day. It may be given as a general rule, that a different 
time and sum may be employed, provided they yield the same product 
when multiplied together. Thus, the interest of £ 10,000 for one day 
is the same as the interest of £ 1,000 for 10 days. 

Bankers differ in their mode of calculating the interest upon current ac- 
counts. Some have an Interest-Ledger, or cash columns ruled in the 
Current- Account- Ledger, in which they state the interest upon every indi- 
vidual item in the account. Thus, for instance, the general balance 
takes place the 30th of June, and the 31st of December. If a sum of 
money is paid in on the 1st of May, the interest is calculated on that 
amount from the 1st of May to the 30th of June, and is then carried to 
the credit of the party's interest account. On the other hand, if a cheque 
be drawn on the 1st of May, the interest is calculated and carried to the 
debit of the interest account. On the 30th of June, the interest account 

187 



A Treatise on Banking. 

is balanced, and the balance is carried to the debit or credit of the party's 
current account. Other bankers take off the balance of the current ac- 
count into a separate book (or have columns ruled in the ledger for bring- 
ing out the balances [see p. 158]) for every day, from the 1st of January 
to the 30th of June ; add all these amounts together, and then take the 
interest of the total for one day. To take the interest for one day is a 
very easy operation. The interest of any sum for one year at 5 per cent, 
is one twentieth part of the principal, and the interest for one day is the 
365th part of the interest for a year. Now, 365 multiplied by 20 gives 
7,300. You have then only to divide any sum by 7,300, and you have 
the interest of that sum for one day at 5 per cent, per annum. The in- 
terest of any sum for one day at any other rate than 5 per cent, may be 
found by multiplying the principal by twice the rate of interest, and divid- 
ing the product by 73,000. But the best way is to make use of Gilmer's 
Interest Tables, published by Sims & M'Intyre, of Belfast. Similar 
Tables have also been published by Mr. Coulthart, manager of the Ashton- 
under-Lyne Joint-Stock Bank. 

Banks who compound for the stamp duty on their notes and twenty-one 
day bills on London calculate the sum to be paid, by ascertaining the 
amount in actual circulation every Saturday night. The amounts for all 
the Saturdays in the half year being added together, and divided by 26, 
the number of weeks, the quotient shows the average amount in circula- 
tion during that period, and the duty paid is at the rate of 3s. 6d. per 
cent, upon this average amount. This is at the rate of 7s. per cent, upon 
the average annual amount. 

To ascertain what denomination of notes remains the longest in circu- 
lation, let the total average circulation for any given period be represent- 
ed by the number 1,000; and let the amount of each particular denomi- 
nation be represented by a proportionate part of 1,000. Then let the 
total amount of notes paid during the same period be represented by 
1,000, and the amount of each denomination of notes be proportionally 
ascertained ; then place these two series of numbers in juxta-position, and 
it will immediately be seen what denomination of notes remain out the 
longest. For instance, if the average amount of a banker's circulation 
consist of £ 20,000 in £ 5 notes ; £ 15,000 in £ 10 notes ; £ 10,000 in 
£ 20 notes ; and £ 5,000 in £ 50 notes, then the proportionate numbers 
will stand thus : — 



Total Circulation. 


£5. 


£10. 


£20. 


£50. 


1,000 


400 


300 


200 


100 



Then, if during the same period the amount of notes paid of different 
denominations have been £ 15,000 in £ 5 notes ; £ 15,000 in £ 10 notes ; 
£ 12,000 in £ 20 notes ; and £ 8,000 in £ 50 notes, the proportional 
numbers will stand thus : — 



Total Paid. 


£5. 


£10. 


£20. 


£50. 


1,000 


300 


300 


240 


160 



By placing these numbers under the preceding ones, it will be per- 
ceived that the amount of £5 notes paid is less than the proportional 
amount in circulation ; and, consequently, notes of this denomination re* 

188 



Banking Calculations. 

main out the longest; the £ 10 notes remain out a less time ; the <£20 
a still shorter term ; and the £ 50 notes the shortest term of all. 

To ascertain how long a banker's notes remain out, take the average 
amount in circulation for any given period, say three mouths ; ascertain 
the amount of notes paid during that period. If the amount paid during 
the three months is twice the average amount in circulation, then the 
notes have remained out six weeks. If the amount paid is three times the 
amount in circulation, then the notes have remained out one month. The 
term which any particular denomination of notes remains in circulation 
can of course be ascertained in the way I have already described. These 
calculations are easily made by a table of logarithms. 

The following Account shows the Average Amount of Bank of England Notes in Circula- 
tion, distinguishing the Denominations, together with the number of Days the Notes re- 
mained out, in the October Quarter 1843, 1844, 1845, 1846, and 1847 : — 





October Quarter, 


October Quarter, 


October Quarter, 


October Quarter, 


October Quarter, 




1843. 


1844. 




1845. 




1816. 




1847. 




Amount. Days. 


Amount. 


Days. 


Amount. 


Days. 


Amount. 


Days. 


Amount. Days. 




£ 


£ 




£ 




£ 




£ 


£5 


4,879 ; 000 88.0 


5,651,000 


86.8 


5,911,000 


77.8 


6,143,000 


80.6 


5,316,000 74.0 


£10 


3,440,000 91.3 


3,881,000 


91.4 


3,992,000 


78.3 


4,046,000 


79.5 


3,759,000 73.6 


£20 


1,221,000 67.4 


1,417,000 


66.7 


1,473,000 


58.6 


1,458,000 


58.9 


1,398,000 54.3 


£30 


302,000 23.2 


264,000 


23.0 


236,000 


21.1 


228,000 


20.8 


218,000 19.3 


£40 


264,000 17.4 


221,000 


17.2 


205,000 


15.5 


193,000 


15.0 


180,000 13.3 


£50 


1,548,000 46.2 


1,751,000 


48.5 


1,773,000 


39.8 


1,660,000 


40.1 


1,636,000 37.0 


£100 


1,894,000 34.9 


2,249,000 


34.1 


2,383,000 


29.0 


2,243,000 


27.1 


2,294,000 26.2 


£200 


392,000 14.8 


399,000 


14.4 


400,000 


12.9 


373,000 


12.3 


362,000 10.9 


£300 


370,000 12.2 


397,000 


12.4 


389,000 


10.8 


361.000 


10.8 


354,000 9.0 


£500 


870,000 14.1 


827,000 


13.8 


903,000 


12.1 


794,000 


12.0 


803,000 10.3 


£1,000 


2,924,000 12.2 


3,082,000 


10.3 


3,432,000 


10.1 


2,921,000 


8.9 


2,355,000 7.3 



In calculating commissions for 1 per cent., divide by 100; for | per 
cent., by 200 ; for \ per cent., by 400 ; for £ per cent., by 800. 

In calculating the dividends on stock, if it be in the 4 per cents., the 
half yearly dividends will be one fiftieth part of the principal. Hence, 
multiply by 2, and divide by 100. 

If the stock be 3 per cents., the half yearly dividend will be ^-g^ths of 
the principal. Hence, add to the principal oae half of itself, and divide 
by 100. 

If the stock be 3 J per cent., add to the principal one half and one 
quarter of itself, divide by 100, and you have the half-yearly dividend. 

If the stock be 3 J per cent., add to the principal one half and one 
eighth of itself, divide by 100, and you have uV half-yearly dividend. 

Examples. — What is the half-yearly dividend on <£ 13,476 10s. Sd 
3 per cents., 3J per cents., 3J per cents., and 4 per cents. ? 



3 PEE CENTS. 

£ s. d. 

13,476 10 8 

6,738 5 4 

202.14 16 



3| PER CENTS. 

£ s. d. 

13,476 10 8 

6,738 5 4 

1,684 11 4 

218.99 7 4 



189 



3£ PER CENTS. 
£ S. d. 

13,476 10 8 
6.738 5 4 
3,369 2 8 

235.83 18 8 



4 PER CENTS. 

£ s. d. 

13,476 10 8 

2 

269.53 1 4 



A Treatise on Banking. 



3 PEB CENTS. 


3| PER CENTS. 




3^ PEE CENTS. 


4 PEB CENTS. 


£ S. 
202.14 16 
20 


d. 



£ 

218.99 
20 


s. d. 
7 4 




£ s. d. 
235.83 18 8 
20 


£ s. d. 
269.53 1 4 
20 


2.96 
12 


19.87 
12 


16.78 
12 


10.61 
12 


11.52 




10.48 






9.44 


7.36 






Answer. - 

u 
(( 
U 


-3 per 
3^ per 
3f per 


cent, 
cent, 
cent. 


£ s. d. 
202 2 11 
218 19 10 
235 16 9 
9fiQ in 7 





In making calculations respecting the purchase or sale of stock, multiply 
the amount of stock by the price, and divide by 100. Stock-brokers 
have seldom any occasion to make these calculations, as there are books 
published expressly for their use. 

To compute the half-year's dividend on any amount of stock in the 
3 or the 3 J per cents., within one penny. 

Rule. — Multiply the amount of stock by 3 or 3 J, respectively. Take 
the unit of the pounds produced by that multiplication for pence, and the 
remaining figures of the pounds for shillings. But when the unit of the 
pounds produced by this multiplication is more than 4, and also when 
there are shillings or pence in this product, then one penny must be added 
to the result for the unit, and one penny for the shillings and pence. 

Example 1. — What is the half-yearly dividend on £ 13,476 10s. 8d. 
in the 3 per cents. ? 



£ s. d. 

13,476 10 8 



3 Multiply by 3. 



20) 4042.9 12 

202 2 9 Add 2d. as above. £202 2s. lie?. 

Example 2. — What is .the half-yearly dividend on £ 13,476 10s. 8d 
in the 3J per cents. ? 



£ s. d. 

| 13,476 10 8 

3 

40,429 12 
3,369 2 8 

20) 4379.8 14 8 



£218 19 8 Add 2 d. as above. £218 19s. LOd. 

In passing through the books a purchase of Long Annuities, debit the 
account of Long Annuities for the purchase money. Then calculate 
how much per annum the annuity will yield upon the capital invested, 
recollecting that the annuity will expire on the first quarter in the yeai 

190 



Banking Calculations. 

1860. Supposing this rate to be 4 per cent., you will, when the annuity 
is received in April or October, debit Long Annuity account 4 per cent, 
interest on the purchase money, and credit the same account the amount 
of the annuity received. The first entry will be passed to the credit of 
Profit and Loss Account. The second entiy will be passed to the debit 
of Cash Account, as a return of capital. The balance of the Long An- 
nuity account after each entry is made, will show the amount of capital 
that then remains invested in Long Annuities. 

The stock-brokers charge one eighth commission on all purchases and 
sales of stock ; one shilling per cent, on Exchequer Bills and India Bonds. 
The charges are made on the amount of stock, not on the amount of 
money invested. In the purchases or sales of shares in public companies, 
the usual charge is 5s. per share. In continuation accounts, that is, 
where a party buys stock for money and sells it for time, the charge is 
only one sixteenth per cent. Upon terminable annuities, the charge is 
one eighth per cent, upon the money invested. " One eighth commis- 
sion " is a charge of 2s. 6d. (the one eighth of a pound sterling) on 
every £ 100 ; a quarter commission is, of course, 5s. The stock-broker 
usually allows the London banker one half the commission. 

If the stock stands in the name of several persons, any one may re- 
ceive the dividends, but they must unite to execute a sale. If one or 
more of the parties die, the stock is transferred by the survivors, without 
the concurrence of the executors or representatives of the deceased 
party. Hence, if a father wished to give his son a certain amount of 
stock at his death, he might place the stock in his own and in his son's 
name, and upon his death his son would become the actual possessor of 
the property. Powers of attorney made and executed for the sale or 
transfer of stock must be deposited at the bank, for examination, before 
two o'clock, the day previous to being acted upon ; if only for receiving 
dividends upon stock, it is sufficient to present the power of attorney at 
the time when the first dividend thereon becomes payable. A power of 
attorney costs £ 1 Is. 6d. ; but for Bank, India, and South Sea Stock, 
£1 lls.6d. 

Expense of a Transfer in £ £ s. d. £ £ s. d. 

Bank Stock, not exceeding . . . 25 . . 9 exceeding 25 . . 12 

India Stock, " ... 10 . 1 10 " ' 10 . 1 U 

South Sea Stock, " ... .100 .. 9 6 " 100 . . 12 

The dividends on the 3 per Cent. Consols are paid in January and 
July. The dividends on the 3 per Cent. Reduced, and on the 3 \ per 
Cent., are paid in April and October. This last stock bears interest at 
3 \ per cent, only till October, 1854 ; afterwards, 3 per cent. ; but the in- 
terest cannot be further reduced until October, 1874. 

The United States of America reckon their money in dollars. To 
turn dollars, at the exchange of 4s. 6d. per dollar, into pounds sterling, 
multiply the number of dollars by 9, and divide by 40. To turn pounds 
sterling into dollars, multiply by 40, and divide by 9. 

The French calculate their stock, not by the amount of the principal, 
*>ut by the amount of the dividend. Thus, 1,000 francs in the French 

191 



A Treatise on Banking. 

rentes, denote 1,000 francs per annum. To calculate the purchase 
money for any amount of French rentes, first ascertain the principal. 
For the 5 per Cents, you multiply by 20, and for the 4J per Cents, b} 
22§ ; for the 4 per Cents, by 25, and for the 3 per Cents, by 33£. Hav- 
ing obtained the amount of stock, and the price, proceed in the same 
way as in calculating the purchase money for English stock. 

The following quotations from Waterston's " Commercial Dictionary " 
(A Cyclopaedia of Commerce, Mercantile Laws, Finance, Commercial 
Geography, and Navigation, by William Waterston, Esq.) will serve to 
explain the operations connected with foreign bills of exchange : — 

" A foreign bill of exchange is an order addressed to a person residing abroad, di- 
recting him to pay a determinate sum of foreign money to the person in whose favor it 
is drawn, or to his order. The amount of foreign money, therefore, to be paid is fixed 
by the bill ; but the amount of British money (or money of the country in which the 
drawer resides), to be given for the purchase of the bill is by no means fixed, but is 
continually varying. 

" Of the two terms of comparison between the money of one place and that of 
another, one is fixed, the other is variable. The place whose money is reckoned at the 
fixed price is, in commercial language, said to receive the variable price ; the other is 
said to give the variable price. Hence, the higher the exchange between any two 
places, the more it is in favor of that which receives the variable price ; the lower, the 
more in favor of that which gives the variable price ; — the exchange being said to be 
favorable or unfavorable to any place, according as a smaller or larger amount of the 
currency of that place is required for discharging a given amount of foreign payments. 
Thus London receives from Paris a variable number of francs and centimes for £ 1 
sterling; and taking the par at 25 francs 34 centimes for £ 1, exchange will be 5 per 
cent, in favor of London when it rises to 26 francs 62 centimes, and about 5 per cent, 
against London when it falls to 24 francs 7 centimes. 

" Bill merchants study the exchanges, not only between the place at which they re- 
side and all other places, but also between all those other places themselves, by which 
means they are generally enabled to realize a profit by buying bills in one place and 
selling them in another ; — in this way preventing any great fall in the price of bills in 
those countries in which the supply exceeds the demand, and any great rise in those 
countries in which the supply happens to be deficient. Sometimes exchange opera- 
tions are conducted with little outlay of capital. Thus, if a bill merchant in London 
can sell a bill on Amsterdam at half per cent, premium, and buy one at Paris at half 
per cent, discount, and with the latter buy one at Paris on Amsterdam at par, he will 
have gained 1 per cent, by the transaction, without the employment of any capital ; — 
the bill remitted from Paris to Amsterdam arriving in time to meet the bill drawn 
there upon his correspondent. Again, a bill merchant, in order to take advantage of 
a premium on the exchange, may obtain a credit abroad upon which he may draw 
bills, under the calculation that at some future and not very distant period he will be 
able to replace the funds at a lower rate of exchange, and thereby realize a profit by 
the operation. The central points for such transactions are Hamburgh, Amsterdam, 
Vienna, Paris, New York, and above all, London, the great money change of the 
world. 

" In this country the buying and selling of bills on foreign countries is conducted by 
brokers, all such transactions centering in the metropolis. In London, the days for the 
negotiation of foreign bills are Tuesdays and Fridays, the foreign post days. The 
brokers go round to the principal merchants, and discover whether they are buyers or 
sellers ; and a few of the more influential, after ascertaining the state of the market, 
suggest a price at which the greater part of the transactions are settled, with such de- 
viations as particular bills may be subject to from their high or low credit. For the 
bills they buy on one post-day, houses of established credit pay on the following post- 
day, when they receive the second and third bills of the set ; — foreign bills being usu- 
ally drawn in sets of three. The brokerage charged on bills is 1 per mille, or one 
tenth per cent. 

192 



Banking Calculations. 

" On the evenings of Tuesdays and Fridays, the market rates for bills on all the 
principal foreign cities, with the current prices of bullion, are published in Wetenhall's 
' Course of the Exchange.' " 

The following are the places to which England gives a certain amount 
of sterling for a variable amount of foreign money : — 



Amsterdam 

Do. 
Rotterdam 
Antwerp 
Brussels . 
Hamburgh 
Paris . 
Do. 

Marseilles . 
Frankfort 
Vienna 
Trieste . 
Leghorn . 
Genoa . 



short 
3 months 

do. 

do. 

do. 

do. 

short 

3 months 

do. 

do. 

do. 

do 

do. 

do. 



Variable according 


to the Exchanges. 


for 


12 


4f Florins and Stivers. 


" 


12 


n 


do. 


a 


12 


8 


do. 


u 


26 


5 


Francs and Cents. 


u 


26 


5 


do. 


(C 


13 


14^ Marcs and Schillings. 


" 


25 


75 


Francs and Centimes. 


u 


26 


2 


do. 


" 


26 


5 


do. 


" 


122 


i 


Batzen. 


(C 


10 


11 


Florins and Kreusers. 


U 


10 


12 


do. 


(( 


30 


37 


Lire Tosc. and Cent. 


u 


26 


5 


Lire and Centesimi. 



The following are the places to which England gives an uncertain 
amount of sterling for a fixed amount of foreign money : — 







Variable according 








to the Exchanges. 




Madrid 


. 3 months 


36 


pence for 


1 Dollar of Plate. 


Cadiz . 


do. 


36^ 


it a 


1 do. 


Naples 


. do. 


40 


M (( 


1 Ducat. 


Palermo 


do. 


119£ 


U K 


1 Onza. 


Messina . 


do. 


120 


CI « 


1 do. 


Lisbon 


60 days/d 54 


ce u 


1 Milreis. 


Oporto 


. do. ' 


53 h 


(C cc 


1 do. 


Gibraltar 


do. 


48 


H (C 


1 Hard Dollar. 


Venice 


do. 


47 


" " 


6 Lire Austriachi. 


St. Petersburg 


do. 


38 


<; c< 


1 Silver Rouble. 


Rio Janeiro 


. do. 


30 


" " 


1 Milreis. 


New York 


do. 


47* 


<( (( 


1 United States Dollar 


Calcutta . 


. do. 


23 


tt u 


1 Company's Rupee. 



To ascertain the amount of English money that ought to be received 
for a foreign bill, divide the amount of the bill by the rate of exchange. 
Thus, suppose the following bill, for 300 francs, were negotiated at the 
rate of 25 francs 65 cents the pound sterling, then divide 300 by 25*65, 
and the result will be the amount in English money. 



Londres, le 18 Janvier, 1849. B. P. F*- 300. 

Au vingt Fevrier prochain veuillez payer contre ce Mandat a Tordre de Messieurs 
la somme de trois cents francs valeur en compte que vous 



passerez de mime avec ou sans avis de 



A Messieurs 



Banguiers, Paris. 



193 



A Treatise, on Banking. 



25-65 ) 300-00 ( 11 
2565 



•4350 
2565 

1785 
20 

25 65 ) 35700 ( 13 
2565 

10050 
7695 



2355 
12 



25-65 ) 28260 (11 
2565 



•2610 
2565 



••45 Answer, £11 13s. lie?. 

We may observe that all bills are drawn in the money of the country 
in which they are to be paid. 

In the cases referred to in the third paragraph of the above quotation, 
the calculation is more complicated. To ascertain when it is more ad- 
vantageous to send money from one country to another through a third 
country, there must be two " rule-of-three " calculations, instead of one ; 
and if the number of countries is increased, the number of calculations 
will be increased. But these calculations may be abridged by what is 
called " the Chain Rule," or " Conjoined Proportion," or " Compound 
Arbitration." The rule given by arithmeticians is the following : — 
Place the numbers alternately, beginning at the left hand, and let the last 
number stand at the left hand. Then multiply the first row continually 
for a dividend, and the second for a divisor. 

Example. — If 12 lbs. at London are equal to 10 lbs. at Amsterdam, 
and 100 lbs. at Amsterdam are equal to 120 lbs. at Paris, how many lbs. 
at London are equal to 40 lbs. at Paris ? 

Left. Right. 

12 =10 12 X 100 X 40 = 48000 

100 = 120 10 X 120 == 1200) 48000 ( 40 

40 48000 



Answer, 40 lbs. 

This rule is capable of two modifications. The example we have 
given, is when it is required to find how many of the first sort of coin 
weight or measure, mentioned in the question, are equal to the last. It 
may be required to find how many of the last sort of coin, weight or 
measure mentioned in the question, are equal to the quantity of the first. 
In this case, the following is the 

Rule. — Place the numbers alternately, beginning at the left hand, and 

194 



Banking Calculations. 

let the last number stand on the right hand. Then multiply the first row 
for a divisor, and the second for a dividend. 

Example. — If 12 lbs. at London make 10 lbs. at Amsterdam, and 
100 lbs. at Amsterdam make 120 lbs. at Paris, how many lbs. at Paris 
are equal to 40 lbs. at London ? 

Left. Right. 
12 = 10 12 X 100 =1200 

100 = 120 10 X 120 X 40 = 48,000 

40 1200 ) 48,000 ( 40 

48,000 



The above examples will explain the principle of the Chain rule. The 
following example, taken from Mr. Waterston, will show its application 
with regard to the transmission of money. 

London and Paris, through Hamburgh. — Find the arbitrated rate be- 
tween London and Paris when the exchange of London on Hamburgh is 
13 marcs 12 schillings banco for £ 1 ; and that of Paris on Hamburgh 
184 francs 50 centimes, for 100 marcs banco. 

This question comes under the second branch of the rule. It is to as- 
certain how many francs will be obtained for £ 1 sterling when sent to 
Paris by way of Hamburgh ; therefore, 

£l =220 schillings banco =13 marcs 16 schillings. 
Schillings 16 = 1 marc banco. 
Marks banco 100 = 18450 cents = 184 francs 50 cents. 
Cents 100=1 franc. 
l£ 
Then 1 X 16 X 100 X 100 = 160,000 divisor. 

220 X 1 X 18450 X 1 XI = 4059,000 dividend. 
Answer, 25 francs 37 cents. 

It will be seen from the above example, that on the right-hand side the 
marcs, having also fractional parts, have been reduced to schillings, and 
the francs to cents ; and hence it has been necessary to introduce on the 
left-hand, the number of schillings in a marc, and the number of cents in 
a franc : 16 = 1, and 100 = 1. 

Although in this case the remittance is said to be through Hamburgh, 
yet in practice the operation would be made by purchasing in London, 
bills on Hamburgh, and remitting those bills to Paris, — unless bills on 
Paris direct could be purchased on more favorable terms. 

The calculations which refer to the transmission of gold from one 
country to another, are very important. To these we will now refer. 

In England, the precious metals are weighed by the pound Troy. The 
following is the table : — 

24 Grains .... make 1 Pennyweight. 
20 Pennyweights . . • .1 Ounce. 
12 Ounces 1 Pound. 

Standard gold is what is called 22 carats fine ; that is, 22 parts of pure 
gold are mixed with 2 parts of alloy. This alloy consists chiefly, we be- 
lieve, of copper. Our silver coins have 18 pennyweights of alloy in the 
pound. 

A pound weight of gold is coined into 44J guineas, and in the same 

195 



A Treatise on Banking. 

proportion for sovereigns. An ounce of. standard gold is worth in Great 
Britain £3 17s. 10|d. ; being the twelfth part of ,£46 14s. 6(1., the 
value of a pound weight of gold. 

A pound weight of silver is coined into 66 shillings ; and in the same 
proportion for crowns, half-crowns, and sixpenny pieces. 

The specific gravity of gold is 19*360 ; that is, it is 19,360 times 
heavier than distilled water. 

The specific gravity of silver is 10*474 ; that of copper is 8*878. 

A cubic foot of distilled water weighs 1,000 ounces, or 62*5 pounds 
avoirdupois, which is equal to 75-95 pounds troy. 

Avoirdupois weight is as follows : — 

16 Drachms . . . make 1 Ounce. 

16 Ounces . . " . . . 1 Pound. 

28 Pounds 1 Quarter. 

4 Quarters .... 1 Hundred. 

20 Hundreds 1 Ton. 

One lb. avoirdupois is equal to 1 lb. 2 oz. 11 dwts. 20 grs. troy. 

A pound avoirdupois is to a pound troy as 1750 to 1440. 

1 lb. avoirdupois of copper is coined into 24 pence, — equal to £ 240 
out of a ton. The old pennies weighed exactly an ounce avoirdupois ; so 
that in buying an ounce of any commodity, a poor man might, if he 
thought he had short weight, use a penny piece for the weight. For some 
years past, the penny has been only two-thirds of an ounce. 

The amount of gold in circulation in Great Britain, including that in 
the Bank of England, is variously estimated at from 44,000,000 to 
60,000,000 sterling. The silver is estimated at 11,000,000, but that in- 
cludes the coin in the colonies. (Commons, 3,483-3,488.) 

We often find in the City Article of the Times, and sometimes in the 
Morning Chronicle and the Economist, paragraphs like the following j — 

" The premium on gold at Paris is 7 per mille, which, at the English 
mint price of £3 17s. I0^d. per ounce for standard gold, gives an ex- 
change of 25*32 £ ; and the exchange at Paris on London, at short, being 
25*25, it follows that gold is 0*30 per cent, dearer in Paris than in Lon- 
don. 

By advices from Hamburgh, the price of gold is 435§ per marc, which, 
at the English mint price of £3 17s. lO^d. per ounce for standard gold, 
gives an exchange of 13* 10 \ ; and the exchange at Hamburgh on Lon- 
don, at short, being 1310§, it follows that gold is 0.17 percent, dearer in 
London than in Hamburgh. 

The course of exchange at New York on London is 108J per cent. ; 
and the par of exchange between England and America being 109|q per 
cent., it follows that the exchange is 1*08 per cent, against England ; but 
the quoted exchange at New York being for bills at 60 days' sight, the 
interest must be deducted from the above difference." 

The real par of exchange between two countries is that by which an 
ounce of gold in one country can be replaced by an ounce of gold of 
equal fineness in the other country. In England, gold is the legal tender, 
and its price is fixed at £ 3 17s. I0%d. per ounce. In France, silver is 
the currency, and gold, like other commodities, fluctuates in price accord- 

196 



Banking Calculations. 

ing to supply and demand. Usually, it bears a premium or agio. In the 
above quotation, this premium is stated to be 7 per mille ; that is, it would 
require 1,007 francs in silver to purchase 1,000 francs in gold. At this 
price the natural exchange, or that at which an ounce of gold in England 
would purchase an ounce of gold in France, is 25.32 £. But the commer- 
cialexchange — that is, the price at which bills on London would sell on 
the Paris exchange — is 25 francs 25 cents, showing that gold is 0.30 per 
cent, dearer in Paris than in London. Tables have been constructed to 
show the results of each fluctuation in the premium of gold in Paris. In 
the next section we shall insert a table of this kind with reference not 
only to Paris, but also to Hamburgh and to Amsterdam. 

At Hamburgh, again, the exchange is the other way. The price of a 
mark of fine gold is 435| marcs banco, which gives an exchange of 
13.10| marcs and schillings against the pound sterling. But the commer- 
cial exchange is 13.10|, which makes a difference of § of a schilling; 
and it follows that gold is 0.17 per cent, dearer in London than in Ham- 
burgh. 

The Money Table of the United States stands thus : — 

10 Mills make 1 Cent. 

10 Cents 1 Dime. 

10 Dimes 1 Dollar. 

10 Dollars 1 Eagle. 

The following regulations were adopted in the year 1834 respecting 
gold and foreign coins : — 

" Be it enacted by the Senate and House of Representatives of the United States of 
America, in Congress assembled, that the gold coins of the United States shall con- 
tain the following quantities of metal ; that is to say, each eagle shall contain 232 
grains fine gold, and 258 grains standard gold ; each half eagle, 116 grains fine gold, 
and 129 grains standard gold ; each quarter eagle shall contain 58 grains fine gold, 
and- 64£ grains standard gold; every such eagle shall be of the value of 10 dollars ; 
every such half eagle shall be of the value of 5 dollars ; and every such quarter eagle 
shall be of the value of 2 dollars and 50 cents ; and the said gold coins shall be 
receivable in all payments, when of such weight, according to their said respective 
values ; and when of less than such weight, at less values, proportioned to their re- 
spective actual weights." 

"Be it enacted, &c, that from and after the 31st day of July next, the following 
gold coins shall pass current as money within the United States, and be receivable in 
all payments, by weight, for the payment of all debts and demands, at the rates follow- 
ing ; that is to say, the gold coins of Great Britain, Portugal, and Brazil, of not less 
than 22 carats* fine, at the rate of 94 cents and 8-10ths of a cent per pennyweight ; the 
gold coins of France, 9-10ths fine, at the rate of 93 cents and l-10th of a cent per 
pennyweight ; and the gold coins of Spain, Mexico, and Columbia, of the fineness of 
20 carats, 3 grains, and 7-16ths of a grain, at the rate of 89 cents and 9-10ths of a 
cent per pennyweight." 

Under the above Acts of Congress the English sovereign was made a 
legal tender at the rate of 94 T ? a cents per pennyweight. Hence, the full 
weight of the sovereign being 5 dwts. 3.274 grs., it was made equivalent 
to 4 dollars and 87 cents ; or 487 dollars equal £ 100. But, accord- 
ing to a rule established in 1789, and ever since retained in exchange 

* This is the usual mode of expressing the fineness of gold. The ounce is divided 
into 24 carats. If, out of this mass, 2, 3, or 4 parts out of the 24 consist of alloy, the 
whole is said to be 22, 21, or 20 carats fine. 

197 



A Treatise on Banking. 

operations, the par of the dollar is paid at 4s. 6d. sterling, which gives foi 
487 dollars £ 109 lis. 6d. The nominal par thus exceeds the real par 
^ 9 lis. 6d., or 9f£ per cent. In this way, when the exchange is nomi- 
nally 9f § premium, it is really at par. The above calculations are sub- 
ject to some slight modifications by an Act of Congress fixing the amount 
of alloy in both the gold and silver coins at one tenth ; but commercially 
the par of exchange between England and America is usually quoted as 
equal to 109f § per cent. 

When we read in the above calculations that gold is so much dearer in 
one country than the other, we must not infer that gold can therefore be 
sent thither at a profit. We must take into account the expense of con- 
veyance. It is generally considered that the charges and loss of interest 
attendant on sending gold to America, do not amount to much less than 
2 i per cent. 

Before closing this subject, we will make some remarks on our ex- 
changes with India. It has been seen, that with this country we give an 
uncertain amount of sterling for a fixed amount of foreign money ; that is, 
we give so many pence (say 23 or 24) for a rupee. The lower the ex- 
change, that is, the fewer pence we give for the rupee, the more favorable 
is the exchange for England. For, the lower the rate, the more favorable 
is the exchange to that country in whose currency the rate is reckoned. 

The following is the Table for East India Money : — 

12 Pice make 1 Anna. 

16 Annas 1 Rupee. 

100,000 Rupees 1 Lac. 

100 Lacs 1 Crore. 

Taking the rupee at 2s., a crore of rupees is equal to £ 1,000,000 ster- 
ling. A lac is, of course, £ 10,000. The figures expressing Indian 
money are not easily understood by Europeans. The capital of the Bank 
of Bombay is stated at 52,25,000 rupees, and the capital of the Bank of 
Bengal at 1,10,13,580 „ 1 „ 7. These figures should be respectively 
read thus : — Fifty-two lacs, twenty-five thousand rupees ; One crore, ten 
lacs, thirteen thousand five hundred and eighty rupees, one anna, and 
seven pice. 

The East India Company in London issue bills on India. They also 
discount in India, bills drawn on London, taking as collateral security the 
bills of lading and the policies of insurance of the goods against which the 
bills are drawn. Their advances are usually to the extent of three fourths, 
or sometimes three fifths, of the estimated value of the goods. The rate of 
exchange is publicly announced, and undergoes modification from time to 
time, according as the Company may have occasion to accumulate funds 
in London or in India. (See the Evidence of W. P. Paton, Esq., and 
J. D. Dickenson, Esq., before the Committee of the House of Commons, 
on Commercial Distress, 1848.) 

In making further observations upon the subject of this section, we may 
observe, that there is often a great facility acquired in performing arith- 
metical operations by varying the numbers, and especially if we can sub- 
stitute ten or a hundred for some other number. And sometimes we 

198 



Banking Calculations. 

may change the operation, and use multiplication for addition, or the re- 
verse. Thus, if we have to multiply by 15, we can multiply by 10 by 
adding a cipher, and then add half the sum. If we have to take three 
fifths of a number, we may take the sixth tenths. Instead of dividing by 
25, we may multiply by 4, and divide by 100 ; or, instead of multiplying 
by 25, we may multiply by 100 and divide by 4. 

To calculate the interest on large sums at any rate per cent., it is usu- 
ally best to find the interest at 1 per cent, (as you have only to divide by 
100), and then multiply by the rate per cent. 

It is useful sometimes to know how many persons enter a bank in the 
course of a day, and during what hours the greater number arrive. To 
do this, set a person in the hall, with a paper marked 9 to 10, 10 to 11, 
and so on. Then, when a person enters a bank between the hours of 9 
and 10 o'clock, he will make a mark like a figure 1. This mark he will 
repeat as every additional person enters. He will go on in this way all 
through the day. When the bank closes, he will ascertain by counting 
the marks how many persons have entered the bank during each hour, 
and how many altogether. The cashiers should go to dinner during the 
hour in which the fewest people come to the counter. And if a clerk 
wants a day's holiday he should fix on the day on which the fewest people 
enter the bank. It is in this way that a man standing in the street is able 
to keep a register of the number of omnibuses that may pass him during 
the day. 

Occasionally we find that " calculating boys " have been exhibited 
who have performed arithmetical operations with wonderful rapidity. In 
some cases they have explained their mode of doing so. It would appear 
that they have in their mind a large multiplication table, not ending at 12 
times 12, but extending to 50 times 50, or 100 times 100 ; secondly, they 
have a great rapidity of finding equivalent numbers by which the ques- 
tions are more easily worked ; and thirdly, they have a great power of 
memory, by which they can carry on operations in their mind without 
committing them to paper. They seemed to have these endowments by 
nature ; but they may all, in a degree, be acquired by application. A 
large multiplication table may be learned by perseverance. A facility of 
finding equivalent numbers may be aquired by study and practice. And 
even arithmetical operations may be performed by the memory. Let a 
person try to work a sum in the rule of three in this way, in perfect dark- 
ness, and he will find it not so difficult as he would at first imagine. But 
the facilities thus acquired by application would, of course, be vastly infe- 
rior to the endowments exhibited by these " calculating boys." It is re- 
markable that these boys are not found to retain this wonderful faculty 
after they are grown to be men. 

The various systems of artificial memory profess to teach the art of 
remembering figures. This is done by turning figures into letters, and 
then forming a word from those letters, or by associating a symbol with 
the number, or by adding the letters to the end of the word. Thus, sup- 
pose the floor of the room in which you are sitting were divided into 
nine compartments, and had a figure and letters in each compartment , 
thus : — 

O 199 



A Treatise on Banking. 



1. 

B.C. 


2. 

D. F. 


3. 

G.H. 


4. 

J.K. 


5. 

L. 


6. 

M.N. 


7. 

P.Q. 


8. 

E. S. 


9. 

T. V. 



Now, if you wished to remember the number 29, you might form the 
word " foot," and the consonants f and t would give you 29. If you 
wished to recollect 86, form the word " room." So, if the number were 
53, it would be represented by the word " log." The word " book " 
would represent 17 ; the word " paper," ■ 778 ; and " ledger," 5238. 
The advantage of having two letters to one figure is, that you can more 
easily form words ; for if one letter will not form a word, the other may. 
Besides, if you should forget what letter represents any figure, by running 
over the alphabet you will call it to mind. 

We have supposed these numbers and figures placed on the floor. 
Now stand in the centre of the room, with your face toward the window. 
Divide the wall before you into the same compartments as the floor, and 
place over the wall on the ceiling the number 10. You have then before 
you all the numbers, from 10 to 19 inclusive. Divide the wall on your 
right hand in the same way, and place over it the number 20. Over the 
wall behind you place 30 ; and over the wall at your left hand place 40 ; 
and over your head in the centre of the ceiling place the number 50. 
You have now a local place for all the numbers, from 1 to 50. And if 
you wish at any time to recollect any one of these numbers, your mem- 
ory will be assisted by calling to mind its locality in this room. 

You may go further than this. You may place in each of these fifty 
squares a symbol ; that is, the figure of a tree, a flower, a bird, a beast, a 
fish, or any thing else. For instance : — In the compartments on the 
floor you may place trees, the name of each tree beginning with the letter 
belonging to the compartments. The compartments from 10 to 20 may 
each have a flower ; from 20 to 30, a bird ; from 30 to 40, a beast ; and 
from 40 to 50, a fish. And then, if you wish to recollect any matter, 
you may form some fanciful association between it and the symbol. 

Dr. Grey's system is different from that we have described. He rep- 
resents the numerals by the following consonants and vowels : — 



1 


2 


3 


4 


5 


6 


7 


8 


9 


b 


d 


t 


f 


1 


s 


P 


k 


n 


a 


e 


i 





u 


au 


01 


ei 


ou 



Then, to recollect a date, you will alter the termination of the word, and 

200 



Banking Calculations. 

place those letters that correspond with the figures. Thus, he calls 
Alexander the Great, Alexifa, and the last three letters show that he died 
331 years before the Christian era. Julius Csesar is called Julios, showing 
that he died 46 years before the same period ; and Homput shows that 
Rome was founded 753 years before the Christian era. 

These systems of artificial memory have not been found in practice to 
answer the eulogiums of their professors. Nevertheless, they are occa- 
sionally useful in assisting the recollection of figures. 

The following questions may be instructive or interesting to those 
young men who may be disposed to work them : — 

When a banker discounts bills having two, three, six, nine, and twelve months to 
run, charging at the time the discount of 4 per cent., what rate of interest does he ob- 
tain on the money actually advanced at these respective dates 1 

Suppose a banker should lend £100.000 consols at 90, from the 1st of January to 
the 13th day of February, at 1-1 6th continuation, and should part with the money at 
£ 10,000 a day in the discount of bills at 2£ per cent., all of which bills should fall 
due, in equal proportions, on the 10th, 11th, and 12th of February, what would he gain 
by the transaction I 

If a banker buy consols at 90 on the 1st of December, receive the half-yearly divi- 
dend on the 8th of January, and sell the consols again at 90 on the 1st of February, 
what interest per cent, per annum does he receive for his money after deducting the 
income tax ? 

If a Long Annuity (which expires in January, 1860) is bought at 8£ on the 1st day 
of March, 1849, what rate of interest does it yield after paying the income tax of 
sevenpence in the pound on the annuity? 

Suppose there were thirty clerks in a bank, the junior had £80 per annum and the 
senior £ 500, and they increased in arithmetical progression, what is the ratio of their 
increase, and what is the total amount of their salaries ? 

Suppose you were asked to make an advance on a lease which had twenty years to 
run, and on which there was a net profit rent of £ 100 per annum, what advance would 
you make upon it, calculating its present value at 7 per cent., and taking a margin of 
one third its value ? 

If a bank which has £20 paid up on each share, pays a dividend of 6 per cent., how 
much is that per share ? 

If a bank gives an annual bonus of 7s. per share, on which £ 10 is paid up, how 
much is that per cent, per annum ? 

One ounce of standard gold is worth £3 17s. 10^d. A sovereign is worth twenty 
shillings. What should be its weight? 

A pound weight of silver is coined into sixty-six shillings. What are the respective 
weights of a sixpenny-piece, a shilling, and a half-crown ! 

A ton weight of copper avoirdupois is coined into £ 240 in penny-pieces : What is 
the weight of a halfpenny-piece ? 

What is the weight of "a cubic foot of gold, and into how many sovereigns may it be 
coined 1 

What is the weight of a cubic foot of silver, and into how many shillings may it be 
coined ? 

What is the weight of a cubic foot of copper, and into how many farthings can it be 
eoined ! 

A cubic foot of gold will displace a cubic foot of water, but how much water would 
be displaced by a cube of silver of the same weight ? 

The gold that came to Solomon in one year was six hundred three score and six 
talents. Supposing this to be pure gold, how much alloy must be added to reduce it 
to standard gold, and what then would be the number of talents ? — Supposing this 
standard gold to be taken to the issue department of the Bank of England, under the 
Act of 1844, and bank-notes received in exchange at the rate of £3 17s. 9c?. per ounce, 
what amount of bank-notes would be received, taking the Hebrew talent as equal to 
113 lbs. 10 oz. 1 dwt. 10 grs. troy ? — Supposing payment of these notes should after- 

201 



A Treatise on Banking. 

wards be demanded in sovereigns, which are coined at the rate of £3 17s. 10£<£. per 
ounce, what would be the total weight of these sovereigns 1 

Find the arbitrated rate of exchange between London and Amsterdam when the ex- 
change of London on Madrid is 37 pence for one dollar of plate, and that of Amster- 
dam on Madrid is 100 florins 75 cents, for 40 ducats of plate. 

Bar gold in London is 77s. 9c?. per ounce standard : required the arbitrated rate of 
exchange produced by its export to the United States for coinage, at the rate of 
232-1 grains of fine gold for the eagle of 10 dollars. 

Bar silver in London is 60 pence per ounce standard; in Amsterdam 104£ florins 
per pond fine ; required the arbitrated rate of exchange, the Netherlands pond being 
equal to 1,000 wigties, and 31.1002 wigties equal to one ounce troy* 

If the premium on gold at Paris is 5£ per mille, and the exchange at Paris on Lon 
don is 25.27^, how much per cent, is gold dearer in Paris than in London ? t 

If the price of gold at Hamburgh is 435 per marc, and the exchange at Hamburgh 
on London is 13.10f, how much per cent, is gold dearer in Hamburgh than in 
London ? f 



Sect. XIV. — BANKING DOCUMENTS. 

By banking documents, I mean such reports, bonds, deeds, letters, or 
other writings, as are used in connection with banking. 

I. I shall notice those Documents that are used in the formation of a 
Joint-stock Bank. 

When any persons propose to form a joint-stock bank in any district, 
they procure the statistical returns of the district ; such as the tables of 
the population, — the exports and imports, — the duties paid, — the returns 
of the sales in the various markets, — and every other information re- 
specting the trade and wealth of the district. If these prove satisfactory, 
they take notice of the banks already established there, and observe 
whether they are joint-stock banks or private banks, — whether strong or 
weak, — and whether likely to oppose or to join any new establishment. 
If the existing banks be joint-stock banks, the projectors procure from 
the stamp-office a list of the shareholders, in order to observe the strength 
of their proprietary, and whether they reside chiefly in the district. 

Having satisfied themselves that a new bank would be successful, the 
first document drawn up is a prospectus. This document usually sets 
forth the great advantage of joint-stock banking to both the public and 
the shareholders, and then points out the facilities of the district in which 
the bank is proposed to be established. 

Previous to issuing the prospectus, some leading persons in the district 
are requested to become members of a provisional committee for the for- 
mation of the bank, and they obtain the assistance of an influential 
solicitor, to whose office the applications for shares are usually addressed. 
The committee then appoint a secretary, or sometimes the office of sec- 
retary is filled by the solicitor. 

* The last three questions are taken from Waterston's Manual of Commerce, where 
the operations are performed. t See the Table No. 18, in the next section 

202 



Banking Documents. 

Attached to the prospectus is the form of an application for shares, 
similar to the following : — 



BANKING COMPANY. 



HEAD BANK, 



Capital, £ in Shares, of £ each. 

Application foe Shares. 

To the Provisional Committee of the . Banking Company. 

Gentlemen, 

I beg to apply for shares in the above bank, upon 

the conditions of the published prospectus. If the shares be granted, my utmost in- 
fluence shall be exerted in support of this bank. 
I am, 

Yours respectfully, 



Name 

Business or Profession 
Residence .... 

As the applications come in, they are entered in a book prepared for 
the purpose. In the first column is entered the date of the application ; 
then follow the name, profession, and residence of the applicant ; then 
the number of shares applied for, and in a further column the number of 
shares granted. After the committee have determined what number of 
shares to allot to each applicant, letters are addressed to the respective 
parties in the following forms : — 

Sir, 

I am instructed by the Provisional Committee of the 



Banking Company, to inform you, that they have allotted you shares in 

the Company; and you are requested to pay the sum of upon each 

share, to , where you will receive the certificate. 

I am, Sir, 

Your most obedient Servant, 

A. B. Secretary. 

Sir, 

Your application for in the Banking 

Company has been laid before the Provisional Committee, who regret, that in conse- 
quence of the numerous applications, they are unable to comply with your request. 

I am, Sir, 

Your obedient Servant, 

A. B. Secretary. 

The certificates granted upon receipt of the first payment on the 
shares are different. Some use the following form : — 

. BANKING COMPANY. 



Deposit Certificate. 
No. 

18 

This is to certify, that the bearer hereof has paid the sum of £ 

203 



A Treatise on Banking. 

being the allotment fee of per share upon 

shares of £ each, alloted to him in the capital stock of the above Banking 

Company. 

For the Provisional Committee 

of the Banking Company. 



Other banks adopt the form of a receipt, thus : 



BANKING COMPANY. 



Received of Mr on account of the above 

bank, the sum of £ being the deposit of per share on 

his being admitted a holder of shares. 

18 



After the sums have been received, a general meeting of the share- 
holders is called in the following form : — 

BANKING COMPANY. 

18 

Sib, 

I am instructed by the Provisional Committee to inform you, that the 
first general meeting of the shareholders in the above Banking Company will be held 

at the on next, for the 

purpose of submitting a report of their proceedings, electing a board of directors, and 
adopting resolutions for the immediate constitution of the Company. 
The chair will be taken at twelve o'clock. 

Lest you should be unable to attend, I annex a form of proxy for voting, the blanks 
of which you must fill up before it is placed in the hands of a shareholder. 

I am, Sir, 

Your obedient Servant, 

Secretary. 

Proxy for Voting. 
BANKING COMPANY. 



I, the undersigned, a shareholder in the above Banking Company for 

shares, do hereby appoint also a shareholder 

therein, to vote for me, and on my behalf, at the first general meeting of shareholders, 
to be held in on instant. 

Witness my hand this . day of 18 

Name 

Residence .... 
No. of shares . . . 



At the general meeting the provisional committee make a report of 
their proceedings. Resolutions are then passed, — 1. That the report be 
received and printed ; — 2. That certain shareholders then named be ap- 
pointed directors ; — 3. That the thanks of the meeting be given to the 
provisional committee. The bank is now formed, and the government is 

204 



Banking Documents. 

assumed by the directors. They appoint the manager and other officers ; 
they prepare the deed of settlement ; and they adopt the measures ne- 
cessary for the commencement of business. 

II. — The Deed of Settlement. 

This is the deed of partnership, which must be signed by all the share- 
holders. It fixes the name of the bank, — the places where business is to 
be carried on, — and the denomination and number of the shares. It 
regulates the appointment of directors, — the qualifications of share- 
holders, — and the mode of holding meetings, transferring shares, and 
making dividends. It also provides for the winding up of the affairs of 
the bank, in case it should not be successful. So many joint-stock banks 
have printed their deeds of settlement, that any new bank would find no 
difficulty in procuring a copy. All banks now introduce a clause, pro- 
viding that if one third or one fourth of the paid-up capital be lost, the 
bank shall be dissolved : and generally there is a clause authorizing any 
alteration of the deed by two successive meetings of the shareholders 
specially summoned for that purpose. 

III. — Bonds of Security by the Officers. 
The following form may be adopted for a manager : — 

Know all men by these presents, that we, A. B. of . C. D. 

of E. F. of and G. H., are held and firmly bound to W. 

X. and Y. Z. in the sum of Jive thousand pounds of lawful money of Great Britain, to 
be paid to the said W. X. and Y. Z. or their certain attorney, executors, administra- 
tors or assigns, for which payment to be well and truly made, we bind ourselves and 
each of us, and any three, or two of us, and our and each of our heirs, executors, and 
administrators, and the heirs, executors, and administrators of any three, or two of us 
jointly, severally, and respectively, firmly by these presents. Sealed with our seals. 

Dated this day of in the year of our Lord one 

thousand eight hundred and 

Whereas the above-bounden A. B. has been appointed chief manager of a certain 

public joint-stock banking company, called the , of 

which company, and for the general purposes thereof, the above-named W. X. and 1*. 
Z. have been appointed trustees. And it was agreed, that on the appointment o f the 
said to be such manager as aforesaid, he should with sureties enter into a bond to 
guarantee his fidelity and honest conduct while in the service of the said company. 
And whereas each of them, the above bounden C. D., E. F., and G. H. has, at the 
request of the said A. B. agreed to become surety for him as aforesaid to the extent 
of Jive thousand pounds : Now the condition of the above-written bond or obligation 
is, that if the said A. B. do and shall from time to time while he shall continue in the 
service of the said company as the chief manager of the said company, diligently and 
faithfully serve them, and devote the whole of his time and attention to their business. 
and give such reasonable attendance at their banking-house, as the directors for the 
time being of the said company shall from time to time require, and do and shall keep 
all the secrets of the said company, and inform the said directors of the company 
for the time being of all such letters, writings, papers, and occurrences whatever as 
shall from time to time come to his knowledge respecting the said business, 

205 



A Treatise on Banking. 

and do and shall keep all the cash accounts, ledgers, books, deeds, writings, 
and papers, belonging or relating to the said concern in a proper and business- 
like manner, and regularly answer the letters of their correspondents, and do and 
shall take due care of the moneys, securities for money, and property belonging 
to the said company, or placed in their custody, and do and shall from time to time 
account for, render, and make over to the directors for the time being of the said 
company, all such cash, bills, notes, and other securities as shall from time to 
time come, or without his wilful default might have come to his hands, and shall not 
embezzle, conceal, or waste, nor permit (as far as in him lies) to be embezzled, con- 
cealed, or wasted by others any of the property of the said company, or which shall 
have been intrusted to their care, and do and shall receive all the customers of the 
said banking-house with civility, and make up the notes or memorandums of their 
respective affairs when necessary, and do and shall as far as in him lies cause the clerk 
or clerks of the said company to give full and due attendance at their said banking- 
house, and there to conduct and demean himself or themselves diligently and faith- 
fully and in an orderly manner: and also if the said A. B. do and shall in all other re- 
spects diligently, skilfully, and faithfully demean and conduct himself as the chief man- 
ager of the said company : and moreover, if they the said C. Z>., E. F., and G. H., their 
heirs, executors, or administrators, or some of them, shall and do well and sufficiently 
save harmless and keep indemnified the said company and the directors and all other 
members thereof from and against all losses, costs, charges, and expenses which shall 
or may happen or come to them for or by reason of any act, deed, matter or thing 
whatsoever, wilfully and improperly done, or wilfully and improperly omitted to be 
done by the said A. B. in or during the said service, then the above-written obligation 
shall be void, but otherwise the same shall be in full force. Provided always and it is 
hereby declared, that under the said obligation, the said C. Z)., his heirs, executors, or 
administrators, shall not be liable to a greater sum in the whole than, too thousand Jive 
hundred pounds, nor the said E. F. his heirs, executors, or administrators to a greater 
sum in the whole than one thousand Jive hundred pounds, nor the said G. H. his heirs, 
executors, or administrators to a greater sum in the whole than one thousand pounds. 
As witness the hands and seals of the said parties. 

The following is the form for a clerk : — 

Know all men by these presents, that A. B., C. ZX, and E. F., are held and firmly 
bound to W. X. and Y. Z., in the penal sum of one thousand pounds of lawful money 
of Great Britain, to be paid to the said W. X. and Y. Z., or their certain attorney, ex- 
ecutors, administrators, or assigns, for which payment to be well and truly made, we 
bind ourselves and each of us, and our and each of our heirs, executors, and adminis- 
trators, and the heirs, executors, and administrators of any three or two of us jointly, 
severally, and respectively firmly by these presents. Sealed with our seals. Dated 
this . 

Whereas the above bounden A. B. has been appointed a clerk in a certain public 
company, called the , of which company and for the gen- 
eral purposes thereof the above-named W. X. and Y. Z. have been appointed trustees. 
And it was agreed that on the appointment of the said A. B. he should with sureties 
enter into a bond to guarantee his fidelity and honest conduct. And whereas the 
above bounden C. D. and E. F. have at the request of the said A. B. agreed to become 
surety for him as aforesaid to the extent of Jive hundred pounds each. Now the con- 
ditions of the above-written obligation is, that if the said A. B do and shall, while he 
shall continue in the service of the said company as such clerk, diligently and faith- 

206 



Banking Documents. 

folly serve them, and devote the whole of his time and attention to their business, and 
give such reasonable attendance at their office, as the directors or manager for the time 
being of the said company shall from time to time require ; and do and shall keep all 
the secrets of the said company, and inform the directors of the said company for the 
time being of all such letters, writings, papers, and occurrences whatsoever, as shall 
from time to time come to his knowledge respecting the said business ; and. do and 
shall from time to time account for and make over to the directors or manager for the 
time being all such cash, bills, notes, and other securities as shall from time to time 
come or without his wilful default might have come to his hands, and shall not em- 
bezzle, conceal, or waste, nor permit (as far as in him lies) to be embezzled, concealed, 
or wasted by others, any of the property of the said company, or which shall have 
been intrusted to their care. And also if the said A. B. do and shall in all other 
respects diligently, skilfully, and faithfully demean and conduct himself as such clerk 
of the said company. And moreover, if they the said C. D. and E. F., their heirs, 
executors, and administrators, or some of them shall and do well and sufficiently save 
harmless and keep indemnified the said company and the directors and all other mem- 
bers thereof from and against all losses, costs, charges, damages, and expenses, which 
shall or may happen or come to them for or by reason of any act, matter, or thing 
whatsoever wilfully and improperly done, or wilfully and improperly omitted to be 
done by the said A. B. in or during the said service, then the above-written obligation 
shall be void, otherwise the same shall be in full force. Provided always, and it is 
hereby declared, that under the said obligation the said C. D., his heirs, executors, 
or administrators, shall not be liable to a greater sum in the whole than Jive hundred 
pounds ; nor the said E. F. his heirs, executors, or administrators, to a greater sum 
in the whole than Jive hundred pounds. As witness the hands and seals of the said 
parties. 

IV. — Declarations of Secrecy. 

The following is the form for the directors and trustees : — 

"We, the undersigned persons, being respectively the directors and honorary direct- 
ors, and trustees of the public Joint-stock Company called 

do severally declare that we will respectively, faithfully, and impartially discharge the 
several duties devolving on us as such directors as aforesaid, according to the deed of 

settlement of the company, bearing date the day of , 

and any laws and regulations that may be made in pursuance thereof. And we do 
hereby pledge ourselves, and as inviolably as if we had taken our oaths thereto, that 
we will observe the strictest secrecy on the subject of all transactions of every descrip- 
tion of the company, with their customers for the time being, or with any other bodies 
or persons whatsoever, and on the subject of the accounts of all bodies and individuals 

from time to time having accounts with the said company. Dated this 

day of , 18 

The following is the form for the officers : — 

Declaration of Secrecy by the Managers and Clerks. 

We, the undersigned persons, being respectively managers, accountants, cashiers, 
tellers, and clerks of the Banking Company, do severally de- 
clare, that we will respectively, faithfully, honestly, and impartially discharge the sev- 
eral duties devolving on us as such managers, accountants, cashiers, tellers, and clerks 

207 



A Treatise on Banking, 

as aforesaid, according to the directions of the directors of the company, and any laws 
and regulations that may be made by them. And we do hereby severally pledge our- 
selves, and as inviolably as if we had taken our oaths thereto, that we will observe the 
strictest secrecy on the subject of all transactions of every description of the company 
with their customers for the time being, or with any other bodies or persons whatso- 
ever, and on the subject of the state of the accounts of all bodies and individuals from 

time to time having accounts with the said company. Dated this day 

of , 18 

V. — Letters of Guarantee? 

With reference to Advances or to Bills Discounted. 

Bill-brokers usually give a letter of guarantee, instead of indorsing the 
bills they have discounted with the bankers. And sometimes one party 
will guarantee to the bank the bills discounted for another. 

To the Directors of the Banking Company. 

Gentlemen, 

In consideration of your paying the cheques of Mr. 



otherwise advancing him sums of money, I hereby guarantee the repayment thereof 
upon demand, to the extent of one thousand pounds. 

I am, &c. 

(2.) 
To the Directors of the Banking Company. 

Gentlemen, 

In consideration of your discounting a bill for £ , drawn by A. B. 

or C. D. dated , at months, I hereby guarantee the due pay- 
ment of the same at maturity. 

I am, &c. 

. (3) 
Gentlemen, 

In consideration of your discounting the above bills, I hereby guarantee 
the punctual payment thereof #s they respectively fall due. 

I am, &c. 

(4.) 
Gentlemen, 

Mr. John Slender may have occasion to offer you sundry bills for discount. 
In consideration of your discounting such of them as you approve of, which I request 
you to do, I hereby guarantee the punctual payment of such bills when due. 

I am, &c. 

* There are some excellent remarks on this subject, as well as on other matters con- 
nected with practical banking, in " Chapters on Country Banking" by J. K. Kogers. 
(E. Wilson, publisher.) 

208 



Banking Documents. 

VI. -— A Form of Letter, 

i 
To be signed by a Party lodging Deeds or other Documents as Security for Advances of 

Money. 

0) 

To the Directors of the Banking Company. 

Gentlemen, 

I have sent you the title deeds, and other writings, relating to my several 

freehold and copyhold estates and properties, in or near , in the 

county of , and which documents I hereby declare are deposited with 

you, as a security for all sums of money now or hereafter to become due from me, 
either solely, or jointly with others, to the said banking company, either upon banking 
account, or in any other manner howsoever (including interest, commission, and all 
other usual banking charges) ; and I hereby engage, upon request, to execute to you, 
or to the trustees of the said company, a mortgage of the said tenements and premi- 
ses, for the better securing the said sum or sums of money, intended to be hereby se- 
cured, such mortgage to contain a power of sale, and all other usual covenants, and to 
be at my expense. 

I am, &c. 

(2.) 
Gentlemen, 

Having this day borrowed of you £ , upon a deposit of the under- 
mentioned securities, which sum is to be repaid to you, with interest at per 

cent, per annum, on the next, I hereby authorize you, in 

case the said sum of £ shall not be repaid as aforesaid, to sell the said securi- 
ties, or any part thereof, whenever you may think proper so to do, and repay your- 
selves the sum of £ and interest, returning to me the surplus (if any), or hold- 
ing it for my account; and in the event of any deficiency, I hold myself responsible to 
you and the survivors of you for the same. 

I am, &c. 

(3.) 
Gentlemen, 

In consideration of the loans, advances, or discounts which may be made 
to me, or upon my request by you, I hereby charge all or any title deeds or other prop- 
erty belonging to me, which I may place or leave in your hands, with the repayment 
of all such loans, advances, or discounted bills, together with all costs, interest, and 
charges thereon ; and I hereby undertake to make an assignment by way of mortgage, 
with power of sale, whenever called upon so to do, of the property which I may or 
shall be entitled to under such title deeds. 

I am, &c. 

VII. — Memorandum of Agreement with reference to the Lodgment of 

Deeds. 

Memorandum, tha+ on the day of , in the year of our 

Lord one thousand eight hundred and forty- , , 

hath delivered to , at their office in , 

in the county of , the several title deeds and documents men- 
tioned and comprised in the schedule hereunto annexed, for the purpose of securing to 

209 



A Treatise on Banking. 

the proprietors in the said banking company for the time being, of whomsoever the 
same banking company may from time to time consist, all and every sum and sums 

of money which shall at any time hereafter be due or owing from 

, on the balance of his account current with the said banking com- 
pany, either for money paid or advanced, or to be paid or advanced, by the said bank- 
ing company unto the said _, or at his request, or 

which shall be secured by any bond or bill of exchange drawn or endorsed by the said 

, or by any promissory note or other contract 

whatsoever, with interest for the same respectively, from the several times at which 
they respectively shall be advanced, or at which the said bonds, bills, notes, or other 
contracts respectively shall become due, and thenceforth until payment thereof respec- 
tively after the rate of per centum per annum, with commission and other 

usual banker's charges, so as the same do not exceed in the whole the sum of 

£ . 

And the said doth hereby promise and agree 

with and to the said banking company that he the said , 

whenever thereunto required by the said banking company, shall and will effectually 
convey and assure all and singular the hereditaments and premises comprised in the 
said deeds and writings unto and to the use of the said banking company, in such 
manner as shall be lawfully required by them, free from incumbrances ; subject, never- 
theless, to redemption on payment by the said . 

of such sum of money as shall be therein expressed to be secured with interest in 
manner aforesaid. And in the said indenture of mortgage shall be contained all usual 
clauses and covenants, with power of sale in case default shall be made in payment of 
the principal and interest to be thereby secured, or any part thereof. As witness the 

hand of the said , the day and year first above 

written. 

C The schedule above referred to.) 

VIII. — Cash Credit Bond. 

Almost every bank that grants cash credits has its own form of bond. 
I think the following as good as any that I have seen : — 

Know all men by these presents, that we, A. B., of_ 



., and E. F., of , are jointly and severally held 



and firmly bound to W. X. of , and Y. Z. of . 

two of the trustees of the society or co-partnership called the 



in the penal sum of pounds of lawful money of Great Britain and Ire- 
land, to be paid to the said F. G. and H. Z, or their certain attorneys, executors, ad- 
ministrators, and assigns, for which payment, to be well and truly made, we bind our- 
selves, and each and every of us, and our, and each and every of our heirs, executors, 
and administrators, jointly, severally, and firmly by these presents. Sealed with our 
Dated this of . 



Whereas the above-bound A. B. has opened an account with the above-mentioned 

society or co-partnership, called the , at their 

establishment, at , and is desirous of being accommodated 

by the said society or co-partnership, from time to time, in some one or other of the 
various modes in which bankers are in the habit of affording accommodation, and to 
induce the said society or co-partnership to take the said account, and to accommodate 

210 



Banking Documents. 

him from time to time, in some one or other of the modes aforesaid, the said A. B. and 
the said C. D. and E. F. as his sureties, have agreed to enter into the above-written 
bond or obligation with such conditions as hereinafter is expressed. 

Now the condition of the above-written bond or obligation is such, that if the said A. B., 
C. Z)., and E. F., or some or one of them, or their, or some or one of their heirs, exe- 
cutors, or administrators, do and shall, on the demand in writing, under the hand of 

any one of the public officers of the said society or co-partnership, called 

_, well and truly pay or cause to be paid to the said society or co- 
partnership, all and every such sum and sums of money as upon the balance of any 
account current, which now is, or at any time or times hereafter shall be open between 
the said A. B. and the said society or co-partnership, shall or may, from time to time, 
be due and owing from or by the said A. B., his executors, or administrators, together 
with all discount, interest, postage of letters, and commission, according to the usage 
and course of business, but nevertheless to the extent only of £ prin- 
cipal money, exclusive of interest and costs, in case such balance shall exceed the sum ; 
and so that the above-written bond or obligation shall, and may be, a continuing secu- 
rity to the said society or co-partnership to the amount of £ prin- 
cipal money, besides such interest and costs as aforesaid, notwithstanding any settle- 
ment of account, or other matter or thing whatsoever, then the above-written bond or 
obligation shall be void ; otherwise, the same shall remain in full force and virtue. 

Signed, sealed, and delivered 

in presence of . 

The following is the form of cash credit bond used by one of the 
banks in Scotland. It will be seen that the latter part has a reference 
to the peculiar law of Scotland, and hence it is not adapted for the use 
of banks established in England : — 

We, A. B , C. D., and E. F., considering that the directors of the banking company, 

established in Edinburgh, under the title of the , 

have agreed to allow us credit upon a current account, to be kept in the name of the 

said A. B., in the books of the said bank at its branch office in , 

or at such other office or offices of the said bank as the directors thereof may from time 

to time appoint, to the extent of pounds sterling, upon granting these 

presents ; therefore we, the said A. B., C. D., and E. E., hereby bind and oblige our- 
selves conjointly and severally, and our heirs, executors, and successors whomsoever, 

to content and pay to the said , or to , 

the present manager of the said bank, or to his successors in office as manager, for be- 
hoof of the said bank, and the whole partners therein, or to the assignees of the said 
bank, or of its said manager, or his foresaid, the aforesaid sum of Jive hundred pounds, 
or such part or parts thereof as the said A. B. shall receive or draw out by orders or 
drafts on the said bank, in virtue of the aforesaid credit, and also such sum or sums of 
money as the said bank or its said manager shall stand engaged for on account of me, 
the said A. B., by accepted or discounted bills, letters of credit, guarantees, or in an- 
other manner of way not exceeding in all the said sum of Jive hundred pounds, over 
and above what of the proper cash of me, the said A. B., may happen to be lodged on 
the said cash account ; and that at any time when the same shall be demanded, after 
six months from the date hereof, with the legal interest thereof from the time of ad- 
vance until the same be repaid, and a fifth part more of the said principal sum of pen- 
alty, in case of failure or pi-oportionally effeiring to the sum due, and it is hereby de- 
clared, that a stated account, made out from the books of the said bank, and signed by 

211 



A Treatise on Banking. 

the manager, secretary, or accountant thereof, for the time with reference to this pres- 
ent bond, shall be sufficient without any other voucher to constitute and ascertain a 
balance and change against us, and no suspension shall pass upon the change so con- 
stituted and ascertained, but on consignation only. And we consent to the registra- 
tion hereof, in the books of council and session, for others competent, that letters of 
horning, on six days' change and all other necessary execution, may pass upon a de- 
cree, to be interposed hereto, in common form, and for that purpose we constitute our 

Procurators . 

In witness whereof, the present written upon stamped paper by _, 



IX. — Letters of Credit, 
Granted by the Bank upon its Agents or Branches. 

BANKING COMPANY. 



To 

Sir, 

There has this day been lodged at this office by the 

sum of for the credit of whose drafts to that 

amount you will honor, and charge the same to the account of the 

Banking Company. 

I am, Sir, 

Your obedient Servant, 

£ Manaqer. 

Entered Accountant. 

(2.) 
BANKING COMPANY. 



No. 
To 



(Not Transferable.) 

Sir, 

Yon will be pleased to credit in the sum 

of and charge the same to the account of the 

___ Banking Company, with this branch. 

I am, Sir, 

Your obedient Servant, 
Manager. 



£ 

Entered Accountant. 



(3.) 
_ BANKING COMPANY. 



Paris. 18 _______ 

Gentlemen, 

This letter will be presented to you by _ to whom 

you will be pleased to pay to the extent of _ deducting your charges, 

and taking for your reimbursement his drafts on this bank, which will meet with due 
honor. 

I am, &c. 

212 



Banking Documents. 
(4.) 



New York. 

This letter will be presented to you by Mr. , In 

whose favor we beg to establish a credit for pounds sterling. You will 

please hold this sum, or any part thereof at his disposal, less your usual charges, and 
take in exchange his drafts upon this bank, which will be duly honored. It is under- 
stood that this credit is to be available for one year from this date, at which period, if 

Mr. . has not made use of it, you will consider it cancelled. We 

shall forward you, in our next letter, the signature of Mr. , to, 

which we refer. 

I am, &c. 



X. — Deposit Receipts. 

These are receipts for money, upon which the bank allows interest. 
The following form may be used : 



BANKING COMPANY. 

No. £ 



18 



Received from the sum of 

sterling to the credit of his deposit account with the Banking 

Company. 

By Order of the Board of Directors. 
Entered Accountant. Manager. 

The following form is a much better one, but, unfortunately, it is ille- 
gal. According to law, we cannot introduce the rate of interest allow- 
ed, nor the notice required, unless the receipt be stamped. It may be 
hoped, that in the next Stamp Act, the Chancellor of the Exchequer will 
introduce a clause permitting the use of such receipts as the following. 
It is used by a highly respectable bank in one of the Midland Counties : 

BANKING COMPANY. 

No. 

18 



Received from the sum of 



for which we are accountable with interest at the rate of per cent 

per annum, on receiving days' notice. Interest to cease from day of 

notice. 

For the Directors and Proprietors of the ■ 

Banking Company. 



_ Manager. 



No interest allowed unless the money remains three months. 
XI. — Requisition Notes. 

These are notes or memorandums which are used by some banks to 
enable their customers to state with less trouble what they require, and 

213 



A Treatise on Banking. 

to specify the cash they pay into the bank. They are usually placed on 
the counter, to be ready when wanted. The following are the forms 
most in use : — 

(1.) 

Eequisition Note. 
To be filed up by Parties desiring Receipts for Money deposited, Letters of Credit, or Bills 



















day of 1 8 
■Wn.ntP.fi frnm trip "Ranking f!nmpany 
the Manager's 


Specification of Money 
presented to the Cashier. 














for the sum of 




TCntprPfl _■£ 


Applicant. 

(20 
Letter op Credit. 














Specification of Money. 


to 


Cre 


dit 


Wanted, the 
Letter of Credit on 




Bank of England Notes 

Gold 

Silver and Copper . . 
Local Notes .... 


18 
Banking Company's 


in favor of 




Bills 


for 


£ 
Entered 


£ 
nf 


Applicant 





(3.) 
Payment to Credit of Current Account. 



Specification of Money. 



Bank of England Notes 

Gold 

Silver and Copper . . 
Local Notes . . . . 
Bills 



Paid to the , 

Company, the sum of 

to be placed to the credit of 

in current account with said bank. 

By 



18_ 



Banking 



Entered in the Bank's Cash Book, £ 

(40 



Teller. 



Firm. . 
Business , 
Residence 



Application for Account. 

Names of Persons composing the Firm. 



Probable return . 

Advance required 

Security proposed 

Order of the Board per Minute, 

dated 18 



214 



Banking Documents. 



By the 



(5.) 
Bills Discounted 

Banking Company at 



18. 



No. 



When Payable. 



Postage. 



WhenP'ble. 



Days. 



Amount of Bill. 



Discount. 



Proceeds. 



XII. — A Letter 
Summoning a General Meeting of the Shareholders. 
BANKING COMPANY. 



a 18. 



Sib, 

I beg leave to inform you that the Annual General Meeting of the Proprie- 
tors of this Company, pursuant to the deed of settlement, will be held at twelve o'clock 

on instant, at the in this place, for the purpose 

of electing Directors, and for the despatch of other business. 

A list of all the Proprietors qualified for the direction by holding fifty shares and 
upwards, is annexed. 

I am, Sir, 

Your obedient Servant, 

, Manager. 

Most large banks have also a printed form for their letters of ordinary 
correspondence, as the following : — 

Sir, 

I beg to acknowledge the receipt of your favor of the , 

inclosing sundries £ and undue bills. 



for 



the credit of your account. Your advices have due attention. 
You are credited for the following sums received. 



I am, Sir, 



Your most obedient Servant, 



XIII. — Special Contracts. 

Those joint-stock banks that are not formed under the Act of 7th Geo. 
IV. Cap. 46, sue and are sued in the names of their trustees.* And to 
enable them to do so, those parties who open accounts with the bank 

* These banks obtained in 1844 the power of suing and being sued in the names of 
their registered public officers. 

P 215 



A Treatise on Banking. 

enter into a special contract. This may be done by a letter addressed to 
the trustees personally, in a form similar to the following : — 

To A. B., C. D., and E. F. 

18 

Gentlemen, 

You engaging that the Banking Company shall pay 

to me whatever sums may be due to me on my current or other accounts with it, I 
hereby agree, as a separate contract with you, to pay to you or the survivors of you, 
after demand, the balance, if any, which shall at any time hereafter be due by me to 
the said Banking Company on those accounts or otherwise. 
I am, Gentlemen, 

Your obedient Servant, 



XIV. — Notices of Calls for further Payment on Shares. 

BANKING COMPANY. 

18 

Sir, 

I beg to inform you that the Board of Directors of this Company, agree- 
ably to the powers contained in clause No of the deed of constitution of the 

Company, have made a third call of £ per share on each of the shares 

in the Company, and that the same will become payable on the ___ of 

next. 

The certificate for your share is at , and will be delivered to you 

on payment of £ , and in exchange for that now in your possession. 

You will please to take notice, that all payments for calls must be made free of post- 
age, and in cash, on or before the of , otherwise they will 

not be received except with interest at the rate of 5 per cent, per annum from that 
date. 

I am, Sir, 

Your most obedient Servant, 



XV. — Certificates of Shareholders. 
BANKING COMPANY. 



CENTRAL BANK, 



This is to certify that Mr. , of , is a pro 

prietor of shares in the capital stock of the Banking Com 

pany, on which per share has been paid. And as the proprietor thereof, he 

is entitled to all benefits and emoluments arising from such shares, agreeably to 
the deed of settlement of the company, dated the day of , 18 . 

As witness our hand this day of , one thousand eight hun- 
dred and . 

No. ) Two of the Directors 

$ of the Company. 

Registered . 

216 



Banking Documents. 

Some banks exchange the old certificates for new ones after every 
call ; others do not grant new certificates ; and some do not issue certifi- 
cates at all, unless a party requests to have some evidence that he is a 
shareholder. 

XVI. — Deed of Transfer. 

This deed is executed by the buyer and seller of any shares in the 
bank, after the directors have given their consent to the transfer. The 
following is the form of this instrument : — 

This Indenture, made the day of , 18 , between , 

of , of the first part ; _, of , of the 

second part ; and , of the City of , trustees (ap- 
pointed by the board of directors of the Banking Company) of the 

covenant hereinafter contained, of the third part. 

Whereas the said has become the purchaser, with the approba- 
tion of the said board of direction, of share in the capital of the said company : 

on each of which shares the sum of pounds still remains unpaid. 

Now this indenture witnesseth, that in consideration of the sum of , at 

or before the sealing and delivery of these presents paid by the said 

to the said , the receipt of which said sum of the said 

doth hereby acknowledge, and from the same and every part 

thereof doth release and for ever discharge the said , his heirs, ex- 
ecutors, administrators, and assigns : the said . hath bargained, sold, 

and assigned, and by these presents doth bargain, sell, and assign unto the said 

, his executors, administrators, and assigns, all those the said 

shares of his, the said , in the capital of the 

Banking Company, and all benefits, advantages, powers, and privileges attending the 
same ; to have, hold, receive, and take the said shares hereby assigned, and the said 
benefits, advantages, powers, and privileges attending the same, unto the said 

, his executors, administrators, and assigns, for his and their own 

use and benefit. 

And the said doth hereby, for himself, his heirs, executors, and 

administrators, covenant, promise, and agree, with and to the said 

and , their executors and administrators, that in respect of the 

share hereby assigned, and all and every other share and shares which the said 

may hereafter purchase in the capital of the said company, he, the 

said , his heirs, executors, or administrators, shall and will, well 

and truly, in all respects, observe, perform, and keep all and singular the covenants, 
agreements, and provisions, contained in the deed of settlement of the said company, 

bearing date the day of , 18 , so far as the same ought on 

his or their parts to be observed, performed, and kept. 

In witness whereof, the said parties to these presents have hereunto set their hands 
and seals, the day and year first above- written. 

Witness to the identity and signature of 



Signed, sealed, and delivered by 

In the presence of 



217 



A Treatise on Banking. 

Memorandum. 

It is needful that this document should be completed and left at the office of the com 
pany without delay, when a certificate of the shares will be given to the purchaser, into 
whose name the shares cannot be placed until this regulation is complied with. 

XVII. — Circular Notes, issued by the London and Westminster Bank. 

LONDON AND WESTMINSTER BANK. 

No. Lettre de Credit Circulaire pour £ . Sterls. 

A Messieurs, les Banquiers, Londres, ce , 18 . 

designts dans nos Lettres d Indication. 

Messieurs, 

Cette lettre vous sera remise par M. , , dont 

vous trouverez la signature dans notre Lettre vindication susdite. Je vous prie de 

vouloir bien lui compter sans frais quelconques, la valeur de Livres 

Sterlins, au cours a Usance sur Londres contre sa traite ci-jointe sur cette Banque. 
J'ai l'honneur d'etre, 
Messieurs, 

Votre tres obeissant Serviteur, 

, Secritaire. , Gtrant- 

On the other side : — 

LONDON AND WESTMINSTER BANK. 
£, . Londres, ce , 18 . 



A sept jour de vue prefix payez, a l'ordre de M. 
Livres Sterlins valeur recue. 



18 



These Circular Notes are accompanied by the following Letter of In- 
dication : — 

Lettre d'Indication. 

LONDON AND WESTMINSTER BANK. 

Londres, ce , 18 . 

Messieurs, 

Le porteur de cette Lettre, M. , pour lequel nous re- 

clamons vos attentions, est muni de nos Billets de Change Circulaires pour son voyage 
Nous vous prions de lui en fournir la valeur sur son double acquit au cours du change 
a. usance sur notre place, et sans deductions de frais, d'apres nos instructions. 

Si la ville ou il en touchera le montant n'a pas de change direct sur Londres, vous 
voudrez bien en combiner un avec la place cambiste la plus voisine. 

Vous observerez que tout Agio sur especes d'or, ou d'argent, et tous frais extraordi- 
naires dans le cas d'un remboursement indirect, doivent etre supportes par le porteur, 
et ne peuvent etre a notre charge. 

218 



Banking Documents. 

Cette Lettre devant accompagner nos Billets Circulaires doit rester dans les mains 
de leur porteur jusqu'a leur epuisement. 

Nous avons l'honneur d'etre, 

Messieurs, 



Vojis tres humble et tres 

obeissants Serviteurs, 



., Gerard. 
., Secretaire. 



Filles. 
Abbeville, 



Co rrespondans. 
MM. Gavelle & Cie. 



Aix la Chapelle, 

Do. 
Aix en Provence, 

Aleppo, . . . 

Alexandrie, 
Amiens, . . . 
Amsterdam, . 
Ancone, . . . 
Anvers, . . . 
Athenes, . . . 
Augsbourg, . . 
Avignon, . . . 
Avranches, . . 
Baden Baden, . 
Do. 



Oeder & Cie. 

Charlier & Schiebler. 

Guiton Talamel. 

Wm. & Eobt. Black 

&Co. 

Briggs & Cie. 

Grimaux &Codeville. 

Hope & Cie. 

G. Terni & Fils. 

Osv & Cie. 

F. Strong. 

P. de Sfettin. 

Thomas Freres. 

F. Hullin. 

F. S. Meyer. 

Augustus Klose. 

Bagneres de Bigorre,Villeneuve & Cie. 

-r q ™ q i™ q f Gerona, Freres Cla- 

Barcelone, . . .J v ^ & ' Cie> 

Bareges, .... Villeneuve & Co. 

Basle, Vischer & Fils. 

Bayonne, .... Capt. Graham. 

t> • t C Wm. & Robt. Black 

Beirout, • • • • J & Co . 

Bergen, .... A. Grieg & Fils. 
Berlin, .... Les Freres Schickler. 

Berne, Marcuard & Cie. 

Besanqon, . . . Jacquard & Cie. 

Blois, A. Bruere. 

Bologne en Italie, F. Perotti. 

Bonn, Jonas Cahn. 

Barton & Guestier. 
Alexandre Adam & 

Cie. 
H. Schroder Fils. 
. Eichhorn & Cie. 
. F. Du Jardin. 
C Freres Lobbecke & 
• I Cie. 
Brunn, .... J. Herring. 
Bruxelles, . . . F. Brugmann & Fils. 
C Lonergan Freres & 
\ Cie. 
Caen, . . . . E. Guilberr & Cie. 

Cairo, Briggs & Cie. 

Calais, .... P. Devot & Cie. 
Cambray, . . . . N. Boniface & Fils. 
Carlsbad, . . . B. Gottl & Fils. 



Bordeaux, 

Boulogne S \ M. 

Bremen, . . . 
Breslaw, . . . 
Bruges, . . . 

Brunswick, . . 



Cadiz, 



219 



Villes. 
Carlsruhe, . MM. 
Cassel (Hesse), . 
Cette, 

Chambery, . . . I 

Cherbourg, . . . 

Civita Vecchia, . } 

Coblentz, .... 
Cobourg, . . . . 
Cologne, . . . 
Constance, . . . 

Constantinople, . \ 

Copenhagen, . . 
Corfu, . 
Damascus, 
Dantzig, . 
Darmstadt, 
Dieppe, . 
Dijon, . . 
Dresde, . 
Dunkirk, . 
Dusseldorf, 

Elberfeld, . 

Elsineur, 
Emms, . . 
Florence, 
Frankfort Sj M., 

Do. . . 

Gand, . . 
Genes, . . 

Geneve, 

Gibraltar, . 
Gottingen, 
Grafenburg, 
Hague, 
Hambourg, . 
Hanovre, . 
Havre, . . 

Do. . . 
Heidelberg, . 
Inspruck, . 
Interlachen, 
Jerusalem, 
Kissingen, . 



■ 



i 



Correspondana. 
Augustus Klose. 
L. Feidel. 
F. Durand & Fils. 
Ve. Python & Ge- 

noud Fils, aine. 
Mauger Freres. 
John Thomas Lowe, 

jun. 

F. H. Kehrmann. 
Schraidt & Cie. 
J. D. Herstatt. 
Macaire & Cie. 
Chas. S. Hanson & 

Cie. 
Frolich & Cie. 
J. Courage. 

G. H. Gibb & Cie. 
Gibsone & Cie. 

J. A. Zoeppritz. 
Quenouille aine. 
Drevon & Marion. 
M. Kaskel. 
Charles Carlier. 
G. ClefF. 
Vonder Heydt Ker- 

sten & Fils. 
N. & C Fenwick. 
Deinhard & Jordan. 
Plowden & French. 
Gogel, Koch & Cie. 
M. A. de Rothschild 

& Sons. 
Bank of Flanders. 
Gibbs & Co. 
Lombard, Odier & 

Cie. 
Archbold & Cie. 
L. & P. Benfey. 
Arnstein & Eskeles. 
Scheurleer & Fils. 
S. Heine. 

L. & A. H. Cohen 
— Dubois & Cie. 
Etienne Troteux. 
C. A. Fries. 
Louis J. Mayer. 
Isidor Jackowskl 
W. T. Young. 
Freres Bolzano. 



A Treatise on Banking 



YiUes. Correspondans. 

Konigsberg, MM. C. L. Andersch. 

Lausanne, . . . Chas. Bugnion. 

Leipsig, . . . . M. Kaskel. 

Do., Frege & Cie. 

Liege, .... M. J. Vercour & Cie. 

Lille, Rouze Mathon. 

"-■ ■ •{ J -S heibenpogen 

. H. G. Scholtz. 

W. Macbean & Cie. 
. Freres Muller. 

F. Knoerr & Fils. 
. F. Petri. 

Plowden & French. 
. Ve. Guerin & Fils. 
( Murdock,<Shortridge, 
i & Cie. 
. H. 0. Shea & Cie. 

John Giro 
. Jas. Bell & Cie. 

J. G. Bernhardt. 
. Bernard Gottl. 
C Salavay, Pere, Fils, 
I & Cie. 
. Fred. Korn. 

. Cailler & Cie. 



Lisbonne, 
Livourne, 
Lubec, . 
Lucerne, . 
Lucques, 

Do. Bains 
Lyons, . . 

Madeira, 

Madrid, . 
Malaga, . , 
Malta, . . 
Manheim, , 
Marienbad, 

Marseilles, , 

Mayence, . 
Memel, . 
Messina, . 

Metz, . . i 

-Milan, . . 

Montpellier, 
Moscow, . 
Munich, . 
Nancy, . . 
Nantes, . 
Naples, 

Do. . 

Neufchatel, 
New York, 
Nice, . . 

Nismes, . 

Nuremberg, 
Odessa, . 
Oporto, . 
Orleans, . 
Ostend, , 
Palermo, 
Paris, . 

Do. . . 

Parma 



de 



C Carli di Tommaso 
I & Cie. 

F. Durand & Fils. 
. J. L. Burckhardt. 

A. E. D'Eichthal. 
. Elie Bailie. 

P. Ciret & Cie. 
. W. J. Turner & Co. 
C C. M. de Rothschild 
I & Sons. 
. F. Henri Nicolas. 

J. G. King & Sons. 
. E. Carlone & Cie. 
C Vincens De villas & 
I Cie. 
. Leonard Kalb. 

E. Mabs & Cie. 
. Burmester & Co. 

Daquet aine & Cie. 
. F. A. Belleroche. 

G. Wood & Cie. 

. Callaghan & Fils. 
(De Rothschild 
I Freres. 
. L. Laurent. 



MM. 



Villes. 
Pau, . . 
Perpignan, 
Pesth, 
Pisa, . . 
Prague, . 
Presbourg, 
Rastadt, . 
Ratisbonne, 
Rennes, 
Rheims, . 
Riga, . . 
Rome, . . 

, Do. , 

Rouen, 

Rotterdam, 

Salzbourg, 
Scbaffhouse, 
Schwalbach, . 
Seville, . . 
Smyrna, . . 
St. Gall, . . 
St. Malo, . . 
St. Omer, . 

St. Petersburgh, I 



Spa, 
Stockholm, 

Stuttgard, 

Strasbourg, 

Tarbes, 
Toplitz, . 
Toulon, . 
Toulouse, 
Tours, . . 
Treves, . 
Trieste, 
Turin, . 
Valenciennes 
Venice, . 
Verona, . 
Vevey, . 
Vienne, 
Utrecht, . 
Warsaw, . 
Weimer, 
Wiesbaden, 
Wurzbourg, 

Zurich, 



Correspondans. 
Merillon aine, 
F. Durand. 
C. J. Malvieux. 
F. Peverada. 
C. A. Feidler & Fils. 
Arnstein & Eskeles. 

F. S. Meyer. 

G. W. Henle 

C. Le Ray. 
Ruinart, Pere & Fils. 

Torlonia & Cie. 
Plowden, Cholmeley, 

&Co. 
J. Faucon. 

D. & C. Blanken- 
heyn. 

— Spath, jne. 

Frey & Fils. 

M. Berle. 

Cahill, White & Cie. 

Lee & Fils. 

J. J. Meyer Fils. 

P. Fontan. 

A. Caffieri. 

Cayley, Moberly & 
Cie. 

J. F. Hayemal. 

Tottie & Arfwedson. 
: Les Fils de G. H. 
I Keller. 
\ Renouard de Bus- 
[ siere. 
k Villeneuve & Cie. 

Emanuel Mayer. 

J. Cassaing & Co. 

Gouin Freres. 

Reverchon & Cie. 

J. Collioud. 

Nigra Freres. 

G. Serret & Cie. 

Schielin Freres. 

J. Smania. 

P. Gcnton & Cie. 

Arnstein & Eskeles. 

Vlaer & Kol. 

S A. Fraenkel. 

J. Elkan. 

M. Berle. 

G. Ochninger. 
[ Gaspard Schulth6ss 
| &Co. 



220 



Banking Documents. 

XVIII. — A Table, showing the Relative Value of Gold in London (at 
the Mint Price of £3 lis. 10|d. per Ounce Standard), and in the 
Cities of 



Premiur 
Per mill 
. . 

i*:: 
?■:: 
>:: 

3* . . 

4 . . 
4*. . 

5 . . 
6*. . 



7 

7* 

8 

8* 

9 

9* 

10 

10* 

11 
11*. 

12 
12*, 

13 , 

13* 

14 , 
14* , 

15 , 
15* , 

16 , 
16* , 

17 , 
17*, 

18 , 
18* , 

19 , 
19* , 

20 , 
20* , 

21 , 
21| , 

22 . 
22* . 

23 . 
23* . 

24 . 
24* . 



e.Fcs. Cts. 
25 14* 

:g» 

" 18* 
" 19* 
"20* 
" 22 
" 23* 
« 24* 
« 25a 
" 27 
" 23* 
" 29* 
" 30* 
" 32* 
" 33* 
" 34* 
« 36 
" 37$ 
" 38* 
" 394 
" 41 
" 42* 
" 43* 
« 443 

" 46 

" m 

" 48i 

" 49* 

" 51 

" 521 

" 53* 

" 54* 

" 56 

" 57* 

" 58* 

" 59* 

" 61 

■ 621 

" 63* 

" 64* 

" 66 

« 67. 



Cents. Per 
In the _£. cent. 



71 

72* 

73* 

74 * 

76 

77* 



•01 
•02 
•03 
•04 
•08 
•12 
•16 
•20 
•24 
•28 



'40 
•44 
•48 
•52 
•56 
•60 
•64 
•68 
•72 
•76 
•80 



1- 

1-04 
1-08 
112 
116 
1-20 
124 
1-28 
1-32 
1-36 
1-40 
1-44 
1-48 
152 
1-56 
160 



Price per 

marc fine. 

Marcs. 

430 . , 

* • ■ 

* . , 

43i*:: 

* . , 

* . . 

* • • 

432 . . 

* • • 

* . . 

* • ■ 

433 . . 
i • • 

* . • 

* . . 

434 . . 

* . • 

* • • 

435*:: 

* . . 
* . . 

436 . . 
. i . . 

* . . 

* . . 

437 . . 
i . . 

* . . 

* • • 

438 . . 

* • . 

* • • 

* . . 

439 . . 

* . . 

* • • 

440 : : 



HAMBURGH 



Sch 
Mcs. Sch. In the 



13 7i 



1 
2 
3 
4 
5 
13 9° 6 



13 10 



13 11 



13 12 



AMSTERDAM. 



Per 

cent. 

•06 

•11 

•17 

•23 

•29 

•34 

•40 

•46 

•92 

1-33 

1-84 

230 

276 



Premium, 

Per cent. Flor. Cts. 
13 . 



15 



94* 
96 
97* 
98* 

01* 

02| 

04 

05* 

06* 

08 

09* 

10* 

12 

13* 

14* 

16 

17* 

18* 

20 

21* 

22* 

23* 

25* 



1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

29 

30 



Per 
cent. 
•02 
•04. 
•06 
•08 
. -17 
•25 
•33 
•42 
•50 
•58 
•67 
•75 
•83 
•92 
1- 

108 
117 
1-25 
1-33 
142 
1-50 
1-58 
1-67 
1-75 
1-83 
1-92 
2- 

208 
2-17 
225 
233 
2-42 
2-50 



Method of Use. — (For example, take Paris.) — Ascertain the premium on gold at Paris — say 9 per 
mille; in the left-hand column, against 9, will be found the rate of exchange per pound sterling produced 
francs 2537*. From that rate, deduct the exchange on London at short — say francs 25 27*. leaving a 
remainder of 9* centimes per pound sterling. In the second column, it will be found that 9* centimes 
in the pound sterling are equal to -39 per cent. ; consequently, gold is -39 per cent, dearer in Paris than 
in London. 

Note.— If the rate of exchange produced by gold in Paris be lower than the exchange at short on Lon- 
don, gold will be dearer in London than in Paris. 



Prussian Coin. — Thaler, Silbergrossch, and Pfenning. 1 thaler = 30 silbgr. ; 
1 silb. = 12 pfennings. 

Frankfort. — Gulders, Kreutzers, and Hellers. 1 gulder = 60 kreutz. ; 1 kreutz 
= 4 hell. 

Dutch. — Guilders and Cents. 1 guild. = 100 cents. 

Belgium and France. — Francs and Centimes. 1 franc = 100 centimes. 

221 



A Treatise on Banking. 



XIX. — A Table of English Money* reduced into 







PRUSSIAN 




FRANKFORT 


DUTCH 


FRENCH 








COIN. 








DOIN. 


COIN. 


COIN. 






At 6 th. 20 


sg- 




11 gul. 54 kr. 


12 guild. 


25 fr. 10 cts. 


£ 


s. d. 

... 1 


Tha. 


8g- 


PS 
10 




Gul. 


Kr. Ha. 
3 ... 


Gld. 


Cts. 
05 


Fr. Cts. 
... 10 


... 


... 2 


... 


1 


8 




... 


6 ... 




10 


... 20 


... 


... 3 


... 


2 


6 






9 ... 


... 


15 


... 31 


... 


... 6 


... 


5 


... 






17 ... 




30 


... 62 




1 ... 


... 


10 








35 ... 




60 


1 25 


... 


2 ... 




20 






1 


11 ... 


1 


20 


2 51 


... 


3 ... 


1 


... 


... 




1 


47 ... 


1 


80 


3 76 


... 


4 - ... 


1 


10 


... 




2 


22 ... 


2 


40 


5 02 


... 


5 ... 


1 


20 






2 


58 ... 


3 


... 


6 27 


... 


10 ... 


3 


10 






5 


57 ... 


6 


... 


12 55 




15 ... 


5 




... 




8 


55 ... 


9 




18 82 


1 





6 


20 


... 




11 


54 ... 


12 




25 10 


2 





13 


10 


... 




23 


48 ... 


24 


... 


50 20 


3 





20 




... 




35 


42 ... 


36 


... 


75 30 


4 





26 


20 






47 


36 ... 


48 


... 


100 40 


5 





33 


10 






59 


30 ... 


60 


... 


125 50 


6 





40 








71 


24 ... 


72 


... 


150 60 


7 





46 


20 


... 




83 


18 ... 


84 


... 


175 70 


8 





53 


10 






95 


12 ... 


96 


... 


200 80 


9 





60 








107 


06 ... 


108 


... 


225 90 


10 





66 


20 






119 





120 


... 


251 ... 


20 





133 


10 






238 





240 


... 


502 ... 


30 





200 








357 




360 




753 ... 


40 





266 


20 






476 





480 


... 


1004 ... 


50 




333 


10 






595 





600 


... 


1255 ... 


60 





400 


... 






714 





720 




1506 ... 


70 





466 


20 






833 




840 


... 


1757 ... 


80 





533 


10 


... 




952 




960 




2008 ... 






Value at which the following Coins are generally current. 
























Belgium 












Prussia. 


Frankfort. 




Holland. 


and 






















France. 












Th. 


Sg. 


GvZ. Kr. 


Guil. Cent. 


Fr. Cent. 


Sovereign, . 








6 


20 


11 50 




12 ... 


25 ... 


Engli 


sh Shilling, 


. 








10 


... 35 




... 58 


1 20 


Dutcl 


1 10-guilder 


piece, 






5 


20 


9 54 




10 ... 


21 16 


Duca 


L . 


. 






3 


. 4 


5 30 




5 60 


11 60 


Guilder, 


. 






... 


17 


... 58 




1 ... 


2 11 


Fred. 


d'Or, . 


. 






5 


20 


9 44 




9 80 


21 


Pruss 


ian Thaler, 


. 






1 




1 45 




1 70 


3 70 


Frenc 


h Crown Thaler, 






1 


16 


2 44 








Braba 


nd do. 


. 






1 


16 


2 42 




2 65 






Convention do. 








1 


10 


2 24 






• 




Piece 


of 20 Kreutzers, 








6 


... 24 







... 




20-franc Piece, 


. 






5 


12 


9 30 




9 54 


20 




5-franc do., 








1 


10 


2 20 




2 35 


5 


.. 


1 -franc do., 










8 


... 28 




.. 48 


1 





The above table has been circulated by the General Steam Navigation 
Company. On this subject I would refer to Mr. Waterston's " Manual 
of Commerce : being a Compendium of Mercantile Tables, British and 

* For an account of the Silver and Gold Coins of different Countries, and their 
Sterling Value, see the New London Mercantile Directory, for 1849. 

222 



Banking Documents. 

Foreign Moneys, Weights, and Measures, and the Theory and Practice 
of Exchange." (Simpkin, Marshall & Co., publishers.) We think also 
this is a proper place to introduce the following account of the origin of 
English Coins : — 

" Pound. — Though a pound is one of the most common denominations for money, 
it never was a real coin, either in gold or silver, in any age or country. Such large 
and ponderous coins would have been in many respects inconvenient. But for many 
ages, both in Britain and in other countries, that number of small coins which was de- 
nominated a pound in computation, or a pound in sale, really contained a pound of 
silver, and they might have been and frequently were weighed, as well as numbered, 
to ascertain their value. If the number of coins that were denominated a pound in 
sale, did not actually make a pound in weight, an additional number of coins were 
thrown in to make up the weight. 

" Monet was coined in the Temple of Juno Moneta, whence our English word 
money. 

" Coin. — Coin (cuna, pecunia) seems to come from the French coign, that is, angu- 
lus, ' a corner ' ; whence it has been held that the ancientest sort of coin was square 
with corners, and not round as it now is. 

"Cash. — Cash in a commercial style signifying the ready money which a merchant 
or other person has at his present disposal, and is so called from the French term 
caisse, that is, ' chest or coffer,' for the keeping of money. 

" Guinea. — This coin took its denomination Guinea, because the gold whereof the 
first was struck was brought from that part of Africa so called ; for which reason it 
likewise formerly bore the impression of an elephant. 

"The value or rate of the guinea has varied. It was first struck on the footing of 
20s. ; but, by the scarcity of gold, was afterwards advanced to 21s. 6c?., and again sunk 
to 21s. 

"Angel. — The angel, called in the French angelot, was a gold coin, value 10s., 
struck in England, where some few are still to be seen in the cabinets of the curious. 
It had its name from the figure of an angel represented on it ; which figure was 
adopted, according to Rapin and others, to commemorate a pun of Pope Gregory the 
Great, which seems to have greatly flattered the vanity of the nation . Struck with the 
fair complexions and blooming countenances of some Anglo-Saxon captives who had 
been brought to Rome, he inquired of what nation they were, and what they were 
called, and being answered Angles, 'Justly be they so called,' quoth he, ' for they have 
angel-tike faces, and seem meet to be made co-heirs with the angels in heaven.' 

" Shilling. — The etymology of the word scylling would lead us to suppose it to 
have been a certain quantity of uncoined silver ; for whether we derive it from pcylan, 
1 to divide,' or pceale, ' a scale,' the idea presented to us by either word is the same ; 
that is, so m»ch silver cut off, as in China, and weighing so much. 

" There were none coined till 1504. Fabian mentions them under their proper 
names, 34 Henry the Eighth. 

"A Tester. — Tester is derived from the French word tete, 'ahead'; a piece of 
money stamped with a head, which in old French was called l un testionj and which 
was about the value of an old English sixpence. • Tester' is used by Shakspeare. 

" Tester, sixpence, from teston, French, an old silver coin, formerly worth 12c/., sink- 
ing by degrees to gilt brass, and sixpence. 

"Groat. — Other nations, as the Dutch, Polanders, Saxons, Bohemians, French. 
&c, have likewise the groats, groots, groches, gros, &c. In the Saxon times no silvei 

223 



A Treatise on Banking. 

coin bigger than a penny was struck in England, nor after the Conquest until Edward 
the Third, who, about the year 1351, coined grosses, that is, groats, or great pieces, which 
went for 4c?. ; and so the matter stood till the reign of Henry the Eighth, who, in 
1 504, first coined shillings. 

" Penny, Halfpenny, Earthing. — Camden derives the word 'penny' from the 
Latin pecunia, c money.' 

" The ancient English penny, penig, or pening, was the first silver coin struck in Eng- 
land ; nay, and the only one current among our Saxon ancestors ; as is agreed by 
Camden, Spelman, Dr. Hicks, &c. 

" The penny was equal in weight to our three-pence ; five of them made one shill- 
ing, or scilling, Saxon ; thirty, a mark, or mancuse, equal to our 7s. 6c?. 

" Until the time of King Edward the Eirst, the penny was struck with a cross so 
deeply indented in it, that it might be easily broke, and parted, on occasion, into two 
parts, thence called half -pennies ; or into four, thence called fourthings, or farthings. 
But that prince coined it without indenture ; in lieu of which, he first struck round 
halfpence and farthings. 

" He also reduced the weight of a penny to a standard ; ordering that it should 
weigh thirty-two grains of wheat, taken out of the middle of the ear. This penny was 
called the penny sterling. Twenty of these pence were to weigh an ounce ; whence 
the penny became a weight, as well as a coin. 

" The penny sterling is now used less as a coin, and subsists chiefly as a money of 
account, containing the 12th part of a shilling, or the 240th part of a pound." (From 
Notes of a Bookworm.) 



XX. — Form of Bond of the Guarantee Society. 

Public Companies' Form. Agreement, 
£ No. 



GUARANTEE SOCIETY. 
Articles op Agreement made and entered into the day of. 



the year of our Lord one thousand eight hundred and , between the three di- 
rectors of the Guarantee Society, whose names are hereunto subscribed, on the part and be- 
half of the said Society of the first part, and of the second 

part. 

Whereas the said parties hereto of the second part have applied to 
Preamble 

the said Guarantee Society for a guarantee to the extent of 

pounds, against any loss to be sustained by the said , by or 

through any fraud or dishonesty of , of « , while 

employed by the said in the capacity of 

And the said society have agreed to enter into such Guarantee accordingly, on the terms 

and subject to the provisions and conditions herein contained and hereunder written. 

Now these' presents witness, that in consideration of the premises, and 

nsi era ion. ^ ^ e sura f paid on behalf of the said ___, 



as a premium for such guarantee from the day until the 

day of , , one thousand eight hundred and forty- , 

both inclusive, being one year and part of another year: It is hereby 

agreed and declared, that from the said day of 

to the last day of , and thence for one year, namely, to the last day of 

224 



Banking Documents. 

, one thousand eight hundred and forty- , inclusive, and for 

every successive term of twelve calendar months for and in respect of which the pre- 
mium of shall be paid to the said society, and the said society shall agree 

to accept the same (such payment to be made on the last day of in 

each year, or within fifteen days thereafter, at the office of the Guarantee Society) dur- 
ing the service of the said in the capacity aforesaid, the fundi 

and property of the said society shall, on the terms and subject to the provisions and 
conditions herein contained and hereunder written, which are to be taken as part of 
this agreement, and subject also to the provisions of the deed of settlement of the said 
society, be liable to pay and satisfy unto the said , at the expi- 
ration of three calendar months after satisfactory proofs and full particulars of the loss, 
and of the nature and extent thereof (verified, if the said society shall so require, by 
declaration under the statute of 5 and 6 Wm, IV. c 62) shall have been received at the 

office of the said society. All such loss, not exceeding pounds, (provided 

such loss shall have happened Avithin eighteen calendar months next preceding the re- 
ceipt of such proofs and particulars,) as the said may sustain 

from any fraud or dishonesty of the said , to be committed after 

the said day of , and during his uninterrupted continuance 

in the said service in the capacity aforesaid. Provided alwavs that the XT . .. , 
,,,.,. , /»,-,." o Notice of fraud 

said shall within ten days after the discovery of to be given with- 

any matter in respect of which any claim may be intended to be made, in len ys * 

give notice, in writing, at the office of the Guarantee Society, of such intended claim, 

and, as far as the case will admit, of all the particulars thereof; and from and after 

such discovery, the guarantee herein contained shall, as to loss by any act of fraud or 

dishonesty subsequent to such discovery, be at an end : Provided, also, 

Security now 
and it is hereby agreed, that the funds and property of the said society gj Ven t0 be the 

for the time being remaining undisposed of, and inapplicable to prior funds and prop- 

• ii i t • i •• /»i •it*/* cny oi inc socio* 

claims and demands, according to the provisions of the said deed of set- ty, after dis- 

tlement, shall alone be subject to any claim in respect hereof, and that ^{^ of pnor 
neither any director executing these presents, nor any proprietor or 
holder of shares in the capital of the said society, shall be individually liable in respect 
of any such claim, or under this agreement, beyond so much of the amount of the shares 
then held by him or her in the said capital, and not subject to prior claims and de- 
mands, as shall not for the time being have been paid up. Provided, also, . 

' ,,,,,,, . , Society to have 

and it is hereby agreed and declared, that the said power to prose- 
shall, in case of making any such claim in writing as aforesaid, forth- cute< 
with, upon being required by the said society, when lawful, arrest the said 

for any offence or offences that he may have 

committed, in respect of which such claim shall have arisen, and personally appear 

upon any examination or examinations of the said , 

and at his trial ; and in that case the said society shall be at liberty, at their own costs and 
charges, to carry on any prosecution or prosecutions for such offence or offences, and to 
commence and carry on, in such name or names as they may be advised, and for their 

own benefit, any actions, suits, or other proceedings against the said , 

for the recovery of any moneys or chattels lost by his fraud or dishonesty, or for dam- 
ages in respect thereof, being hereby indemnified against 

all costs, charges, damages, and expenses in respect of such prosecutions or other pro- 
ceedings. And it is further agreed and declared, that when any such Any p ayrnent oa 

loss shall have been satisfied by or on behalf of the said society, an in- account of fraud 

. , , _ „ , _ _ , . or dishonesty to 

dorsement in satisfaction of all claims shall be made hereon, and signed be indorsed here- 

225 



A Treatise on Banking. 

on, and these by the person or persons to whom the amount of such loss shall be paid 
up to the society. or satisfied, and thereupon these presents shall be given up to and for 
the benefit of the said society, to be of no further force or effect against 
them. In witness whereof, the said parties hereto have hereunto subscribed their 
names the day and year first above written. 



Witness to the signatures of the three Directors 



1 



Witness to the signatures of above-named 



CONDITIONS OP INSURANCE. 

In the event of any loss for which the society shall be liable, such loss shall be borne 
by the society, ratably only, and in common with any other person or persons who 
have already, or shall hereafter during the continuance of this guarantee, become se- 
curity for the said in the service or employment above mentioned, ac- 
cording to the amount for which each shall be guarantee. 

The above agreement is subject to the condition that the answers which have been 

given and signed by the said and by the said 

to the questions lettered from A to 7, both inclusive, submitted by the society, and con- 
tained in a paper called " Form of Proposal for Guarantee," and dated ' 



are in all respects true and correct, otherwise the said agreement to be void. 

That no premium shall be returned under any circumstances after the signing of the 
above agreement. 

Examined and registered 



XXI. — Provident Clerks' Benevolent Fund. 

RULES AND REGULATIONS. 

1. Title. — That this branch of the association be called "The Provident Clerks' 
Benevolent Fund," in connection with " The Provident Clerks' Mutual Benefit Asso- 
ciation." 

2. Object. — That the object of this branch of the association is to provide funds, by 
donations, subscriptions, bequests, or otherwise, for the purpose of granting temporary 
or permanent relief to distressed clerks, who are or have been members, their widows 
and families. 

3. Members. — That the following persons shall be members of this branch of the 
association, and be entitled to vote at all general meetings of this branch of the asso- 
ciation, viz.: — 

First, — Members of the Benefit Department who were admitted as clerks on joining 
the asscciation. 

Second, — Clerks employed in any public or private establishment within Great Brit- 
ain, who subscribe to this fund not less than one guinea annually, or have given a do- 
nation of not less than ten guineas. 

4. Honorary Members or Subscribers. — That persons (hot being clerks^ may become 
honorary members, by a donation of not less than ten guineas, or an annual subscrip- 

226 



Banking Documents. 

tion of not less than one guinea, and be entitled to vote at elections for annuitants in 
proportion to the amount of their donations or subscriptions, according to Rule No 
21. 

5. Management. — That this branch of the association shall be conducted by the same 
board of management as the benefit department. 

6. Treasurer. — That John Abel Smith, Esq., M. P., is the treasurer, and, by virtue 
of his office, is also a member of the board of management. In the event of death or 
resignation, the office of treasurer to be filled up by the board. 

7. Trustees. — That there shall not be less than four trustees, and the funds of this 
association shall be invested in the names of two or more of the trustees for the time 
being. The present trustees are, — 

Thomas Baring, Esq. 

Thomson Hankey, jun., Esq. 

William George Prescott, Esq. 

Baron Lionel de Rothschild, M. P. 
And in case of death or resignation, vacancies to be filled up by the board, subject to 
the approval of the surviving trustees ; the said trustees, by virtue of their office, to be 
members of the board of management. 

8. Auditors. — That the following gentlemen be the auditors of this branch of the 
association, viz. : — 

John Beadnell, Esq. 

James William Gilbart, Esq., F. R. S. 

Sir John Pirie, Bart., Aid. 

George Pollard, Esq. 

William Smee, Esq. 
any two being competent to act, who shall audit the annual accounts, to be laid be- 
fore the members at the annual general meeting. Vacancies to be filled up by the 
board. ^ 

9. Officers. — That the board may appoint such officers to this branch of the associa- 
tion as may be deemed necessary, with power to remove them and to appoint others, 
and to fix the amount of their respective salaries or remuneration : the officers to give 
such security as the board shall require. 

10. Expenses. — That all expenses shall be equitably divided between the benefit de- 
partment of this branch of the association ; and the proportion to be borne by each 
shall be settled by the board, previously to making up the annual account. 

11. Special Meeting of the Board of Management. — That a special meeting of the 
board may be convened on any emergency by a requisition to the chairman, signed by 
five members thereof; the requisition to state the object of such special meeting ; and 
the chairman shall call such meeting within one week of receiving the requisition. 

12. Annual General Meeting. — That an annual general meeting of the members of 
this branch of the association be held in February in each year, on such day as the 
board may appoint, when the annual report of the state of the funds, together with the 
account of the receipts and expenditure of the past year, shall be laid before the meet- 
ing. In case of any questions being submitted to the decision of such meeting, the 
same to be decided by a majority of votes. 

13. Special Meeting of Members. — That a special meeting of members may be con- 
vened by a requisition to the chairman, signed by thirty members at the least ; the re- 
quisition to state the object of such special meeting ; and the chairman shall call such 
meeting within one mouth of receiving the requisition. 

14. Permanent Fund. — That the sum of £> 10,000 3 per cent stock, now invested, or 

227 



A Treatise on Banking. 

its equivalent, shall constitute the permanent fund of this branch of the association, and 
shall on no account be reduced below that amount. 

That the board may apply the interest of the invested fund, together with such pro- 
portion of the annual subscriptions as they may deem fit ("after payment of the ex- 
penses), to the objects of the association. 

That the further increase of the permanent fund shall be at the discretion of the 
board, except that the amount of all bequests, together with the proportion of the 
profits to be received from the benefit department every five years, shall be always 
added to the invested capital. 

15. Casualty Fund. — That the board be empowered to apportion such part of the 
available income of this branch of the association as may be deemed expedient, as a 
casualty fund, from which to grant temporary relief as hereafter mentioned. 

16. Relief. — That no member, his widow or family, be eligible for permanent relief 
until he has belonged to the association for three years, unless by the sanction of the 
annual general meeting. 

17. Temporary Relief.— That temporary relief may be granted from the casualty 
fund to distressed clerks, who are or have been members, their widows, or families, — 
regard being had in all cases to the number in family, and the length of time the party 
may have been a member of the association, — as follows : — 

First, — By loans, on the security of two responsible persons, or other sufficient se- 
curity, of sums not exceeding £ 10 at one time, without interest, or of sums above £10 
and not exceeding £ 25 with interest, to be repaid by quarterly instalments, within 
two years. 

Secondly, — By gratuities of sums, not exceeding £ 10 at one time, in cases of long 
and expensive illness, or other serious calamity, together with medical assistance, at 
the discretion of the board. 

Thirdly, — By weekly allowances of sums not exceeding at the rate of 20 guineas 
per annum, nor for a longer period at any one time than six months. 

Fourthly, — By weekly allowances to orphan children of deceased members, under 
fourteen years of age (both parents being dead), the amount to be fixed by the board 
according to the emergency of the case, but in no instance to exceed 20 guineas to one 
family ; and such allowance, or a proportion of it, to cease as the children respectively 
attain the age of fourteen years. 

That should any member of the benefit department, who was a clerk at the time of 
his entrance, and has regularly paid his premium for five years at the least, be unable, 
from distress or otherwise, to continue his payments, the board may have the power, 
in their discretion, to continue the payment of his premiums from the casualty fund, 
by way of loan to such members, upon such security as the board may deem fit ; the 
policy being deposited with the association, and any bonus declared upon such policy 
being first applied to the repayment of the loan. 

18. Permanent Relief. — That permanent relief be granted by way of annuity, to dis- 
tressed clerks, who are or have been members of this branch of the association, and 
who from old age, blindness, or other infirmities, are rendered incapable of obtaining 
their living. 

That the annuitants shall be elected by ballot, as appointed by the subsequent rules, 
and the annuities be on the following scale, viz. : — 

If been a member 3 to 10 years, . . . £25 per annum. 
* " 10 to 20 years, ... 30 " 

" 20 years and upwards, . . 35 " 

228 



Banking Documents. 

That annuities be granted to widows of members who are incapable of obtaining 
their living, on the following scale, viz. : — 

If husband been a member 3 to 10 years, . . . £15 per annum. 
" 10 to 20 years, ... 20 " 

" " 20 years and upwards, . 25 " 

but such annuities to cease, should such widow marry again. 

That all annuities be paid quarterly. 

That the board have power to increase or decrease, proportionately, the above scales 
of annuities, according to the amount of funds at their disposal, and such increase or 
diminution to apply equally to all annuities already granted. 

That should it come to the knowledge of the board that any annuitant has been 
elected by fraud, or has assigned his or her annuity, or, finally, that his or her means 
of living has improved, so as not to require the aid of the association, the board shall 
have the power to suspend the payment of such annuity, or to reduce the same as they 
may consider fit. 

19. Applications for Relief. — That applications for either temporary or permanent 
relief, be made according to such forms as the board may require ; and every applicant 
must be recommended by two respectable parties, who are acquainted with the case ; 
that applicants for annuities must send in their testimonials and other documents at 
least two months previous to the election ; and any wilful misrepresentation will in- 
validate the election of such annuitant. 

That the board shall take into its consideration the cases of the various applicants, 
and, where practicable, make personal inquiries into the truth of their statements, and 
select such as, in their judgment, are eligible to be balloted for, as well as those deserv- 
ing of casual relief. 

20. Elections. — That the election of annuitants shall take place once a year, or 
oftener, at the discretion of the board, and at such times as they may appoint. 

That notice shall be given by public advertisement or otherwise, of the number of 
annuitants to be elected ; and balloting papers be issued for that purpose, with a list of 
the candidates. 

21. Voting. — That all members, defined by the first section of the third rule, whose 
premiums are duly paid, shall be entitled to one vote for each annuitant to be elected ; 
and that all members or subscribers who have given a donation of ten guineas, or a 
subscription of one guinea, to this branch (payable annually or half-) r early), be entitled 
1o one vote for each annuitant to be elected, and an additional vote for every additional 
donation often guineas, or annual subscription of one guinea. That all subscriptions 
in arrears must be paid up before the party be entitled to vote. 

That clerks, being members of the Benefit Department, as well as subscribers or 
donors to the Benevolent Fund, be entitled to vote in respect of both qualifications. 

That members and subscribers may give all their votes to any one candidate, or di- 
vide them as they please, according to the number to be elected ; they may vote by 
proxy, the polling paper being first signed by them. 

That in the event of an equality of votes for any two candidates, the chairman to 
give the casting vote ; and should any dispute arise as to the election of any candidate, 
a scrutiny may be demanded on behalf of such candidate, provided a requisition, signed 
by six members or subscribers at the least, be addressed to the chairman, demanding 
such scrutiny, and agreeing to pay the expenses of the same. 

22. Alteration of Rules. — That none of the foregoing rules be altered, amended, or 
repealed, unless at a special meeting of the board of management, convened for that 
purpose, who, being so assembled, shall have power to alter, amend, or repeal any c 

229 



A Treatise on Banking. 



the rules, and substitute new ones in lieu thereof; but such alterations, amendment, or 
repeal of rules, or substitution of new ones, shall not take effect unless they have re- 
ceived the sanction of the annual general meeting, or of a special general meeting, 
convened for the purpose. 

23. Situation Book. — That a book shall be kept, to be called " The Situation Book," 
in which the members who are out of employment may enter their names, particulars 
of their former employment, and the nature of that which they are now seeking. 
This book to be open for the gratuitous inspection of merchants, bankers, and others 
requiring clerks. 

24. Form of Bequest. — "I give and bequeathe unto the treasurer, for the time being, 
of the ' Provident Clerks' Mutual Benefit Association,' in trust for the purposes of the 

Benevolent Fund of that Association, the sum of £ , to be paid within 

— months next after my decease, out of such part of my personal estate as 



may lawfully be bequeathed and appropriated to charitable purposes. 



XXII. — St. Clement Danes Savings' Bank Government Annuity Insti- 
tution. 

Office, 18, Series Place, two doors from Carey Street, Lincoln's Inn, London. 

The following is the Government Table, and shows the sum required to be paid for 
an Immediate Annuity of Twenty Pounds, and in proportion for any sum not less 
than 4l. nor exceeding 30l. per annum : — 





AGE. 




£ 


s. d. 


15 and under 16 


377 


15 6 


16 


u 


17 


374 


4 1 


17 


(( 


18 


370 


16 7 


18 


II 


19 


367 


14 6 


19 


" 


20 


364 


19 11 


20 


(( 


21 


362 


12 2 


21 


(( 


22 


360 


10 5 


22 


II 


23 


359 


4 


23 


{( 


24 


357 


12 6 


24 


(( 


25 


356 


4 7 


25 


(( 


26 


354 


15 3 


26 


(I 


27 


353 


3 


27 


(( 


28 


351 


1 8 


28 


CI 


29 


348 17 1 


29 


l( 


30 


346 


9 5 


30 


II 


31 


343 


18 10 


31 


(( 


32 


341 


5 5 


32 


II 


33 


338 


9 5 


33 


II 


34 


335 


9 11 


34 


II 


35 


332 


6 9 


35 


a 


36 


328 


19 11 


36 


a 


37 


325 


9 11 


37 


» 


38 


321 


17 7 


38 


ic 


39 


318 


2 11 


39 


it 


40 


314 


6 7 


40 


u 


41 


310 


7 9 


41 


ic 


42 


306 


5 10 


42 


it 


43 


301 


18 6 


43 




44 


297 


7 10 


44 


K 


45 


292 


12 6 


45 


(I 


46 


287 


12 6 


46 


II 


47 


282 


7 10 


47 


II 


48 


276 16 



230 





AGE. 




£ 


s. d. 


If 48 and under 49 


271 


4 


49 


k 


50 


265 


1 4 


50 


IC 


51 


259 


4 


51 


II 


52 


252 


18 11 


52 


II 


53 


247 


1 8 


53 


It 


54 


241 


5 11 


54 


(( 


55 


235 


12 7 


55 


(I 


56 


230 


1 5 


56 


II 


57 


224 


11 8 


57 


(I 


58 


219 


3 8 


58 


(I 


59 


213 


15 9 


59 


(( 


60 


208 


6 2 


60 


II 


61 


202 


14 4 


61 


IC 


62 


196 


17 5 


62 


II 


63 


190 


14 11 


63 


II 


64 


184 


8 


64 


II 


65 


178 


1 


65 


II 


66 


171 


14 2 


66 


II 


67 


165 


7 5 


67 


II 


68 


159 


9 1 


68 


II 


69 


153 


12 


69 


II 


70 


147 


16 2 


70 


II 


71 


142 


2 6 


71 


II 


72 


136 


11 9 


72 


II 


73 


131 


3 7 


73 


II 


74 


125 


14 8 


74 


II 


75 


120 


1 5 


75 


II 


76 


114 


4 7 


76 


II 


77 


108 


4 3 


77 


II 


78 


101 


7 5 


78 


II 


79 


94 


11 10 


79 


II 


80 


88 


1 10 


80. 


jranygi 


•eater ag 


e 81 


14 10 



Banking Documents. 

XXIII. — Comparative View of the Expectation of Life according to the 
different Tables of Mortality. 



Age. 


North- 
ampton. 


Carlisle. 


Goverment Annuitants. 
Male. Female. 


Age. 


North- 
ampton. 


Carlisle. 6 ' 


>vernment i 
Male. 


innuitan 
Female. 





25.18 


38.72 


50.16 


55.51 


40 


23.08 


27.61 


27.02 


31.12 


1 


32.74 


44.68 


50.13 


55.59 


41 


22.56 


26.97 


26.39 


30.46 


5 


40.84 


51.25 


48.93 


54.23 


42 


22.04 


26.34 


25.74 


29.81 


10 


39.78 


48.82 


45.57 


51.05 


43 


21.54 


25.71 


25.08 


29.14 


15 


36.51 


45.00 


41.76 


47.19 


44 


21.03 


25.09 


24.42 


28.48 


20 


33.43 


41.46 


38.39 


43.99 


45 


20.52 


24.46 


23.75 


27.81 


25 


30.85 


37.86 


35.90 


40.81 


50 


17.99 


21.11 


20.30 


24.35 


30 


28.27 


34.34 


33.17 


37.57 


55 


15.58 


17.58 


17.15 


20.79 


31 


27.76 


33.68 


32.59 


36.91 


60 


13.21 


14.34 


14.39 


17.32 


32 


27.24 


33.03 


32.00 


36.26 


65 


10.88 


11.79 


11.63 


14.00 


33 


26.72 


32.36 


31.40 


35.61 


70 


8.60 


9.18 


9.22 


10.99 


34 


26.20 


31.68 


30.79 


34.96 


75 


6.54 


7.01 


7.12 


8.46 


35 


25.68 


31.00 


30.17 


34.31 


80 


4.75 


5.51 


4.94 


6 50 


36 


25.16 


30.32 


29.54 


33.68 


85 


3.37 


4.12 


3.12 


4.84 


37 


24.64 


29.64 


28.91 


33.04 


90 


2.41 


3.28 


1.95 


2.83 


38 


24.12 


28.96 


28.28 


32.40 


95 


0.75 


3.53 


1.18 


1.55 


39 


23.60 


28.28 


27.65 


31.76 


100 




2.28 




0.50 



PART SECOND. 
OF BANKING INSTITUTIONS 



I The Bank op England. —II. London Private Banks. — III. Joint-Stock Banks in London. — 
IV. Country Private Banks. — V. Country Joint-Stock Banks. — VI. The Banks op 
Scotland. — VII. The Banks of Ireland. — VIII. Moral and Religious Duties op Banking 
Companies. — IX. Ten Minutes' Advice about Keeping a Banker. — X. Summary. 



Section L — THE BANK OF ENGLAND. 

The Act of Parliament by which the bank was established, is entitled 
" An Act for granting to their Majesties, several duties upon tonnage of 
ships and vessels, and upon beer, ale, and other liquors, for securing cer- 
tain recompenses and advantages in the said Act mentioned, to such per- 
sons as shall voluntarily advance the sum of £ 1,500,000 towards carry- 
ing on the war with France." After a variety of enactments relative to 
" the duty upon tonnage of ships and vessels, and upon beer, ale, and 
other liquors," the Act authorizes the raising of £ 1,200,000 by volun- 
tary subscription, the subscribers to be formed into a corporation, and be 
styled, " The Governor and Company of the Bank of England." The 
sum of £ 300,000 was also to be raised by subscription, and the contrib- 
utors to receive instead, annuities for one, two, or three lives. Towards 
the £ 1,200,000 no one person was to subscribe more than £ 10,000 be- 
fore the first day of July next ensuing, nor at any time more than £ 20,- 
000. The corporation were to lend their whole capital to Government, 
for which they were to receive interest at the rate of £ 8 per cent, per 
annum, and £ 4,000 per annum for management ; being £ 100,000 per 
annum in the whole. They were not allowed to borrow or owe more 
than the amount of their capital ; and if they did so, the individual mem- 
bers became liable to the creditors, in proportion to the amount of their 
stock. They were not to trade in any " goods, wares, or merchandise 
whatsoever " ; but they were allowed to deal in bills of exchange, gold or 
silver bullion, and to sell any goods, wares, or merchandise, upon which 
they had advanced money, and which had not been redeemed within 
three months after the time agreed upon. The whole subscription hav- 
ing been filled in ten days, a charter was issued on the 27th day of July, 
1694. This charter has been repeatedly renewed. 

232 



The Bank of England. 

The charter granted in 1708 prohibited any other bank having more 
than six partners, issuing notes in any part of England. 

The charter of 1833 continued the privileges of the bank until the ex- 
piration of one year's notice, to be given within six months after the ex- 
piration of ten years from August 1, 1834. But if such notice should 
not be given, then the charter was to be continued until the expiration of 
twelve months' notice, to be given after the 1st day of August, 1855. 

According to this charter, no other bank, having more than six partners, 
can issue notes payable on demand in London, or within sixty-five miles 
thereof. Bank-notes are to be a legal tender, except at the bank or 
branch banks. The amounts of the notes in circulation, and of the de- 
posits, and of the bullion and securities in the bank, are to be sent weekly 
to the Chancellor of the Exchequer for the time being. These accounts 
are to be consolidated every month, and an average state of the bank ac- 
counts for the preceding three months to be published in the London Ga- 
zette. Any joint-stock bank that does not issue notes may carry on busi- 
ness in London. The following is the clause relating to this subject : — 

"And whereas the intention of this Act is, that the Governor and Company of the 
Bank of England should, during the period stated in this Act, (subject, nevertheless, 
to such redemption as is described in this Act,) continue to hold and enjoy all the ex- 
clusive privileges of banking given by the said recited Act of the 39th and 40th years 
of the reign of his Majesty King George III. aforesaid, as regulated by the said recited 
Acts of the 7th year of his late Majesty King George IV. or any prior or subsequent 
Act or Acts of Parliament, but no other or further exclusive privilege of banking : 
And whereas doubts have arisen as to the construction of the said Acts, and as to the 
extent of such exclusive privilege, and it is expedient that all such doubts should be 
removed : Be it therefore declared and enacted, that any body politic or corporate, or 
society, or company, or partnership, although consisting of more than six persons, may 
carry on the trade or business of banking in London, or within sixty-five miles there- 
of, provided that such body politic or corporate, or society, or company, or partnership, 
do not borrow, owe, or take up, in England, any sum or sums of money on their bills 
or notes payable on demand, or at any less time than six months from the borrowing 
thereof, during the continuance of the privileges granted by this Act to the said Gov- 
ernor and Company of the Bank of England." 

In the year 1844 the bank charter was again renewed unfil the expi- 
ration of twelve months to be given after the 1st day of August, 1855. 
The following are the principal provisions of this important Act (7 & 8 
Vict. c. 32) : — 

Bank to establish a Separate Department for the Issue of Notes. 

" I. Whereas it is expedient to regulate the issue of bills or notes payable on de- 
mand: and whereas an Act was passed in the fourth year of the reign of his late 
Majesty King William the Fourth, entitled ' An Act for giving to the Corporation of 
the Governor and Company of the Bank of England certain Privileges for a limited 
Period, under certain Conditions ' ; and it is expedient that the privileges of exclusive 
banking therein mentioned should be continued to the said Governor and Company 
of the Bank of England, with such alterations as are herein contained, upon certain 
conditions : may it therefore please your Majesty that it may be enacted ; and be it en- 
acted by the Queen's most excellent Majesty, by and with the advice and consent of 
the Lords Spiritual and Temporal, and Commons, in this present Parliament assem- 
bled, and by the authority of the same, that from and after the thirty-first day of Auuust, 
one thousand eight hundred and forty-four, the issue of promissory notes of the Governor 
and Company of the Bank of England, payable on demand," shall be separated and 

23*3 



A Treatise on Banking. 

thenceforth kept wholly distinct from the general banking business of the said governor 
and company ; and the business of and relating to such issue shall be thenceforth con- 
ducted and carried on by the said governor and company in a separate department, to 
be called ' The Issue Department of the Bank of England,' subject to the rules and 
regulations hereinafter contained ; and it shall be lawful for the court of directors of 
the said governor and company, if they shall think fit, to appoint a committee or com- 
mittees of directors for the conduct and management of such issue department of the 
Bank of England, and from time to time to remove the members, and define, alter, and 
regulate the constitution and powers of such committee as they shall think fit, subject 
to any by-laws, rules, or regulations, which may be made for that purpose : Provided, 
nevertheless, that the said issue department shall always be kept separate and distinct from 
the banking department of the said governor and company. 

Management of the Issue by Bank of England. 

" II. And be it enacted, That upon the thirty-first day of August, one thousand 
eight hundred and forty-four, there shall be transferred, appropriated, and set apart by 
the said governor and company to the issue department of the Bank of England secu- 
rities to the value of fourteen million pounds, whereof the debt due by the public to the 
said governor and company shall be and be deemed a part ; and there shall also at the 
same time be transferred, appropriated, and set apart by the said governor and com- 
pany to the said issue department so much of the gold coin and gold and silver bullion 
then held by the Bank of England as shall not be required by the banking department 
thereof; and thereupon there shall be delivered out of the said issue department into 
the said banking department of the Bank of England such an amount of Bank of 
England notes as, together with the Bank of England notes then in circulation, shall 
be equal to the aggregate amount of the securities, coin, and bullion so transferred to 
the said issue department of the Bank of England ; and the whole amount of the 
Bank of England notes then in circulation, including those delivered to the banking 
department of the Bank of England as aforesaid, shall be deemed to be issued on the 
credit of such securities, coin, and bullion so appropriated and set apart to the said 
issue department ; and from thenceforth it shall not be lawful for the said governor 
and company to increase the amount of securities for the time being in the said issue 
department, save as hereinafter is mentioned, but it shall be lawful for the said governor 
and company to diminish the amount of such securities, and again to increase the same 
to any sum not exceeding in the whole the sum of fourteen million pounds, and so from 
time to time as they shall see occasion ; and from and after such transfer and appro- 
priation to the said issue department as aforesaid it shall not be lawful for the said 
governor and company to issue Bank of England notes, either into the banking de- 
partment of the Bank of England, or to any person or persons whatsoever, save in ex- 
change for other Bank of England notes, or for gold coin or for gold or silver bullion 
received or purchased for the said issue department under the provisions of this Act, 
or in exchange for securities acquired and taken in the said issue department under 
the provisions herein contained : Provided always, that it shall be lawful for the said 
governor and company in their banking department to issue all such Bank of England 
notes as they shall at any time receive from the said issue department or otherwise, in 
the same manner in all respects as such issue would be lawful to any other person or 
persons. 

Proportion of Silver Bullion to be retained in the Issue Department. 

" III. And whereas it is necessary to limit the amount of silver bullion on which it 
shall be lawful for the issue department of the Bank of England to issue Bank of 
England notes ; be it therefore enacted, That it shall not be lawful for the Bank of 
England to retain in the issue department of the said bank at any one time an amount 
of silver bullion exceeding one fourth part of the gold coin and bullion at such time held by 
the Bank of England in the issue department. 

All Persons may demand of the Issue Department Notes for Gold Bullion. 

" IV. And be it enacted, That from and after the thirty-first day of August, one 
thousand eight hundred and forty-four, all persons shall be entitled to demand from 

234 



The Bank of England. 

the issue department of the Bank of England Bank of England notes in exchange for 
gold bullion, at the rate of three pounds seventeen shillings and ninepence per ounce of 
standard gold ; Provided always, that the said governor and company shall in all 
cases be entitled to require such gold bullion to be melted and assayed by persons ap- 
proved by the said governor and company, at the expense of the parties tendering such 
gold bullion. 

Power to increase Securities in the Issue Department, and issue additional Notes. 

" V. Provided always, and be it enacted, That if any banker who on the sixth day 
of May, one thousand eight hundred and forty-four, was issuing his own bank notes, 
shall cease to issue his own bank notes, it shall be lawful for her Majesty in Council, at 
any time after the cessation of such issue, upon the application of the said governor 
and company, to authorize the said governor and company to increase the amount of se- 
curities in the said issue department beyond the total sum or value of fourteen million 
pounds, and thereupon to issue additional Bank of England notes to an amount not 
exceeding such increased amount of securities specified in such Order in Council, and 
so from time to time : Provided always, that such increased amount of securities speci- 
fied in such Order in Council shall in no case exceed the proportion of two thirds the 
amount of bank notes which the banker so ceasing to issue may have been authorized to 
issue under the provisions of this Act ; and every such Order in Council shall be pub- 
lished in the next succeeding London Gazette. 

Account to be rendered by the Bank of England. 

" VI. And be it enacted, That an account of the amount of Bank of England notes 
issued by the issue department of the Bank of England, and of gold coin, and of gold 
and silver bullion respectively, and of securities in the said issue department, and also 
an account of the capital stock, and the deposits, and of the money and securities be- 
longing to the said governor and company in the banking department of the Bank of 
England, on some day in every week, to be fixed by the Commissioners of Stamps 
and Taxes, shall be transmitted by the said governor and company weekly to the said 
commissioners in the form prescribed in the schedule hereto annexed marked (A), and 
shall be published by the said commissioners in the next succeeding London Gazette in 
which the same may be conveniently inserted. 

Bank of England exempted from Stamp Duty upon their Notes. 

" VII. And be it enacted, That from and after the said thirty-first day of August, 
one thousand eight hundred and forty-four, the said governor and company of the 
Bank of England shall be released and discharged from the payment of any stamp duty, 
or composition in respect of stamp duty, upon or in respect of their promissory notes 
payable to bearer on demand ; and all such notes shall thenceforth be and continue 
free and wholly exempt from all liability to any stamp duty whatsoever. 

Bank to allow £180,000 per Annum. 

" VIII. And be it enacted, That from and after the said thirty-first day of August, one 
thousand eight hundred and forty-four, the payment or deduction of the annual sum of 
one hundred and twenty thousand pounds, made by the said governor and company 
under the provisions of the said Act, passed in the fourth year of the reign of his late 
Majesty King William the Fourth, out of the sums payable to them for the charges of 
management of the public unredeemed debt, shall cease, and in lieu thereof the said 
governor and company, in consideration of the privileges of exclusive banking, and 
the exemption from stamp duties, given to them by this Act, shall, during the continu- 
ance of such privileges and such exemption respectively, but no longer, deduct and 
allow to the public, from the sums now payable by law to the said governor and com- 
pany for the charges of management of the public unredeemed debt, the annual sum of 
one hundred and eighty thousand pounds, any thing in any Act or Acts of Parliament, or 
in any agreement, to the contrary notwithstanding : Provided always, that such deduc- 
tion shall in no respect prejudice or affect the rights of the said governor and company 
to be paid for the management of the public debt at the rate and according to tho 

235 



A Treatise on Banking. 

terms provided in an act passed in the forty-eighth year of the reign of his late Majesty 
King George the Third, entitled 4 An Act to authorize the advancing for the Public 
Service, upon certain Conditions, a Proportion of the Balance remaining in the Bank 
of England, for the Payment of Unclaimed Dividends, Annuities, and Lottery Prizes, 
and for regulating the Allowances to be made for the Management of the National 
Debt.' 

Bank to allow the Public the Profits of increased Circulation. 

" IX. And be it enacted, That in case, under the provisions hereinbefore contained? 
the securities held in the said issue department of the Bank of England shall at any 
time be increased beyond the total amount of fourteen million pounds, then and in 
each and every year in which the same shall happen, and so long as such increase 
shall continue, the said governor and company shall, in addition to the said annual 
sum of one hundred and eighty thousand pounds, make a further payment or allow- 
ance to the public, equal in amount to the net profit derived in the said issue department 
during the current year from such additional securities, after deducting the amount of the 
expenses occasioned by the additional issue during the same period, which expenses 
shall include the amount of any and every composition or payment to be made by the 
said governor and company to any banker in consideration of the discontinuance at any 
time hereafter of the issue of bank notes by such banker ; and such further payment or 
allowance to the public by the said governor and company shall, in every year while 
the public shall be entitled to receive the same, be deducted from the amount by law 
payable to the said governor and company for the charges of management of the unre- 
deemed public debt, in the same manner as the said annual sum of one hundred and 
eighty thousand pounds is hereby directed to be deducted therefrom." 

Bank to enjoy Privileges subject to Redemption. 

" XXVII. And be it enacted, That the said Governor and Company of the Bank of 
England shall have and enjoy such exclusive privilege of banking as is given by this 
Act, upon such terms and conditions, and subject to the termination thereof at such 
time and in such manner as is by this Act provided and specified ; and all and every 
the powers and authorities, franchises, privileges, and advantages, given or recognized 
by the said recited Act passed in the fourth year of the reign of his Majesty King Wil 
liam the Fourth, as belonging to or enjoyed by the said Governor and Company of the 
Bank of England, or by any subsequent Act or Acts of Parliament, shall be and the 
same are hereby declared to be in full force, and continued by this Act, except so- far 
as the same are altered by this Act; subject nevertheless to redemption upon the terms 
and conditions following ; that is to say, at any time upon twelve months' 1 notice to bt 
given after the first day of August, one thousand eight hundred and fifty-five, and upon re- 
payment by Parliament to the said governor and company or their successors of the 
sum of eleven million fifteen thousand and one hundred pounds, being the debt now 
due from the public to the said governor and company, without any deduction, dis- 
count, or abatement whatsoever, and upon payment to the said governor and company 
and their successors of all arrears of the sum of one hundred thousand pounds per an- 
num, in the last-mentioned Act mentioned, together with the interest or annuities pay- 
able upon the said debt or in respect thereof, and also upon repayment of all the prin- 
cipal and interest which shall be owing unto the said governor and company and their 
successors upon all such tallies, exchequer orders, exchequer bills, or parliamentary 
funds which the said governor and company or their successors shall have remaining 
in their hands or be entitled to at the time of such notice to be given as last aforesaid, 
then and in such case, and not till then, the said exclusive privileges of banking 
granted by this Act shall cease and determine at the expiration of such notice of twelve 
months ; and any vote or resolution of the House of Commons, signified under the 
hand of the Speaker of the said house in writing, and delivered at the public office of 
the said governor and company, shall be deemed and adjudged to be a sufficient no- 
tice." 

We have noticed the provisions of this Act in a former part of our 

236 



The Bank of England. 

work. We shall here only give a summary of the business operations of 
the bank. 

The Bank of England is a bank of issue. She can issue to the extent 
of £ 14,000,000 against that amount of securities set apart for that pur- 
pose. She can issue to any further amount against lodgments of gold 
and silver, as regulated by the above Act. This amount of £ 14,000,000 
may be issued either at the office in London or at the branches. Were 
she to reduce the number of her branches she would not be required to 
issue less than this £ 14,000,000 ; and were she to increase her branches, 
she could issue no more. If other banks discontinue their circulation, she 
may upon application receive permission to extend her issues to two thirds 
the sum thus withdrawn ; but all the profit of this increase must go to the 
Government. She cannot issue any note for a less amount than five 
pounds. All the notes are payable in gold on demand. The payment 
of those issued in London can be demanded only at the London office. 
But the payment of those issued at the branches may be demanded either 
at the London office or at the branches where they were respectively is- 
sued. Bank of England notes are a legal tender in all cases, except 
when tendered by the bank herself. 

The Bank of England is also a Bank of deposit, of loan, and of dis- 
count. She allows no interest on any portion of her deposits, nor per- 
mits any account to be overdrawn. She charges various rates on the 
bills she discounts, but does not go below the rate she announces to be 
her minimum. She does not act as the London agent of country banks ; 
but is the agent of the Bank of Ireland, and the Royal Bank of Scotland. 
She does not accept any bills that may be drawn by those banks, or by 
her own branches, — they are all drawn without acceptance. She does 
not issue any circular notes on foreign countries, nor grant letters of 
credit on foreign banks. She remits money to and from her branches, 
and from one branch to another. She issues at the London office bank- 
post bills, drawn at seven days' sight. 

The Bank of England is also the banker of the Government. She has 
always a large amount of public deposits, on which she allows no interest. 
She receives the public revenue, and pays the dividends on the National 
Debt. 

The profits of the bank are derived from her capital, her rest, public 
and private deposits, the seven-day bills, her agencies, and her circulation. 
From these funds she makes investments in public securities and private 
securities. These bring dividends and interest. She also has a profit on 
the £ 14,000,000 of notes in circulation. This profit is the difference be- 
tween the expense of maintaining the circulation, and the interest re- 
ceived on the securities set apart to meet this circulation. The bank has 
an annual payment from the Government for managing the National 
Debt. She also receives a commission from those banks to which she is 
the London agent. A profit is also obtained on bullion transactions. The 
bank buys gold at £ 3 17s. 9d. an ounce and sells it at £ 3 17s. 10|rf. an 
ounce. Against these profits the bank has to place the expense of con- 
ducting the establishment, and the losses incurred by bad debts, forgeries, 
and unfortunate investments. 

237 



A Treatise on Banking. 

The Branches of the Bank of England. 

The Act of 1826, which permitted the formation of joint-stock banks in 
England, also authorized the Bank of England to establish branches in 
the provincial towns. Their mode and terms of transacting business were 
thus described at the time in a Welsh newspaper, called the Cambrian : — 

" The branch bank is to be a secure place of deposit for persons having occasion to 
make use of a bank for that purpose ; such accounts are termed drawing accounts. The 
facility to the mercantile and trading classes of obtaining discounts of good and unex- 
ceptionable bills, founded upon real transactions, two approved names being required 
upon every bill or note discounted ; these are called discount accounts. The application 
of parties who desire to open discount accounts at the branch, are forwarded every 
Saturday to the parent establishment for approval, and an answer is generally received 
in about ten days. When approved, good bills may be discounted at the branch with- 
out further reference to London. Bills payable at Swansea, London, or any other 
place where a branch is established, are discounted under this regulation. The divi- 
dends on any of the public funds, which are payable at the Bank of England, may be 
received at the branch here, by parties who have opened ' drawing accounts,' after sign- 
ing powers of attorney for that purpose, which the branch will procure from London. 
No charge is made in this case, except the expense of the power of attorney and its 
postage. Purchases and sales of every description of Government securities are effect- 
ed by the branch at a charge of one quarter per cent., which includes brokerage in 
London, and all expenses of postage, &c. A charge of one quarter per cent, is also 
made on paying at the Bank of England, bills accepted by persons having drawn ac- 
counts at Swansea, such bills to be advised by the branch ; also for collecting payment 
of bills at the other branches, and on granting letters of credit on London, or on the 
other branches. The branch grants bills on London, payable at twenty-one days' date 
without acceptance, for sums of ten pounds and upwards. Persons having drawing 
accounts at Swansea, may order money to be paid at the bank in London, to their 
credit at this place, and vice versa, without any expense. The branch may be called 
upon to change any notes issued and dated at Swansea, but they do not change the 
notes of the bank in London, nor receive them in payment, unless as a matter of cour- 
tesy where the parties are known. Bank post bills which are accepted and due, are 
received at the branch from parties having drawing accounts, and taken to account 
without any charge for postage ; but unaccepted bank post bills, which must be sent 
to London, are subject to the charge of postage, and taken to account when due. No 
interest is allowed on deposits. No advance is made by the branch upon any descrip- 
tion of landed or other property, nor is any account allowed to be overdrawn. The 
notes of Messrs. Walter's Bank at this place, of Messrs. Williams & Rowland, Neath 
Bank, and of the Brecon Old Bank, are received in payment at the branch. Any 
other country bankers may open an account for the like purpose. The notes are the 
same as those issued by the parent establishment, except being dated Swansea, and 
made payable there and in London. No note issued exceeds the sum of £500, and 
none are for a less amount than £ 5." 

The Bank of England has opened fourteen branches. But the Exeter 
branch was removed, in the year 1844, to Plymouth ; and the Gloucester 
branch has recently been closed. The following tables will show the cir- 
culation in notes, and bank post bills, of each branch : — 

238 



The Bank of England. 



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239 



A Treatise on Banking. 

The Gloucester branch has recently been closed. At one time the 
Gloucestershire Banking Company issued only the notes of this branch : 
but previous to 1844, they resumed the circulation of their own notes t 
and hence in the years 1843, and 1844, the circulation of this branch de- 
clined. Whether it be from this cause, or from the operation of the Act 
of 1844, that the branch has been discontinued, we do not know. It is 
clear, that under this Act, the Bank of England has few motives for ex- 
tending her branches. She cannot increase her circulation of notes ex- 
cept under especial circumstances, and then all the profit must go to the 
Government. 

The Bank of England consented to establish branches in the year 
1826, at the suggestion of Lord Liverpool, in order to extend to the prov- 
inces the advantage of a secure circulation. This was considered the 
grand desideratum at that time, in consequence of the numerous failures 
that had recently taken place among the country bankers. This object 
was effected, and effected with greater facility, in consequence of the 
establishment of joint-stock banks, who made arrangements for issuing 
Bank of England notes. 

These branches were not merely banks of circulation. They were 
banks of deposit, of discount, and of remittance. In these respects they 
came into competition with the country bankers. This, in some cases 
reduced the charges previously made on banking transactions. As banks 
of discount, they charged the same rate which was charged at the London 
office, — a charge usually below that of the country banks. As banks 
of remittance, they granted letters of credit at a shorter term. As banks 
of deposit, they charged no commission. But, on the other hand, they 
allowed no interest on the balance, and they allowed no account to be 
overdrawn ; and they would not receive from their depositors any country 
notes, unless the banks had previously opened an account with them, and 
made a lodgment to meet their notes. 

While, therefore, the branches have obtained a large circulation, and 
have transacted a good business as banks of discount and of remittance, 
they have not made much progress as banks of deposit. The deposits at 
all the branches amount to only £ 1,200,000. When it is considered that 
the branches are established in large towns, and that many of them have 
existed for above twenty years, this amount is far from considerable. 

Here is another anomaly of the Act of 1844. The Bank of England 
is placed in a position in which it is her interest to withdraw some of her 
branches. At the same time, the banks of issue in the neighbourhood 
of those branches are not allowed to extend their issues so as to fill up 
the vacuum which is thus occasioned in the amount of the local circu- 
lation. 

The Laws of the Currency with Reference to the Bank of England. 

In March, 1841, I was, at the request of the joint-stock banks, ex- 
amined as a witness before a Select Committee of the House of Com- 
mons " appointed to inquire into the effects produced on the circulation of 
the country by the various banking establishments issuing notes payable 

240 



The Bank of England. 

on demand." The charge advanced at the time against the issuing joint- 
stock banks, and generally against all banks of issue was, that they did 
not make the amount of their circulation correspond with the amount of 
the circulation of the Bank of England. With reference to this accusa- 
tion, I laid before the committee a variety of tables, designed to show the 
laws which regulated the circulation of the Bank of England, of the 
country banks, of the banks of Ireland and of Scotland, respectively. 
The inference was designed to show that no correspondence could exist 
between the circulation of these several banks. These tables cannot be 
introduced here. But the following is a summary of my evidence on 
this subject, taken from an article on " The Laws of the Currency, 1 ' 
which I published in the " Foreign and Colonial Review " of April, 
1844: — 

" We have before us two reports from the Committee on Banks of 
Issue, laid before the House of Commons in the years 1840 and 1841. 
The committee report the evidence, and abstain from giving any opinion 
upon the great questions involved in the inquiry. They, however, recom- 
mended the passing of the Act 4 & 5 Vict. c. 50, requiring a monthly 
registry of the circulation of the Bank of England, and of the other 
banks of issue, with the amount of bullion, to be published in the Royal 
Gazette. It may therefore be expected, that, in a course of years, a suf- 
ficient number of facts will be recorded to enable future generations to 
form ' well-grounded opinions ■ on this important subject. 

" In the mean time we will make use of the information we already 
possess. / We will take the monthly returns of the circulation for the 
period that is past, that is, from September 1833 to the end of 1843, and 
endeavour, by observing their various revolutions, to discover if they are 
governed by any fixed causes or principles, — to ascertain if those prin- 
ciples are uniform in their operation ; and if we should discover that the 
revolutions of the currency are regulated by any uniform principles, we 
shall call those principles the Laws of the Currency. 

" We shall begin with that portion of the currency which consists of 
notes issued by the Bank of England. On looking over the monthly cir- 
culation of the Bank of England, given in the Table, No. 34, in the Ap- 
pendix to the Report of 1840,* we observe, that the circulation of the 
months in which the public dividends are paid is higher than in the sub- 
sequent months. Thus, the average circulation of January is higher than 
that of February or March. The circulation of April is higher than that 
of May or June. The circulation of July is higher than that of August 
or September. And the circulation of October is higher than that of No- 
vember or December. This, then, we may consider as one law of the 
circulation of the Bank of England, — that it ebbs and flows four times 
in the year, in consequence of the payment of the quarterly dividends. 
This law does not apply to any other bank, as all the Government divi- 
dends are paid by the Bank of England. 

" Again, the purchase and sale of Government stock and exchequer 

* This table, extended to the latest return, is published in the Banking Almanac 
for 1849, p. 24. It will be seen that the laws of the circulation of the Bank of Eng- 
land remain the same as before the passing of the Act of 1844. 

241 



A Treatise on Banking. 

bills by the Bank of England affects the amount of her circulation. If 
the bank purchase Government stock or exchequer bills, she pays for 
them in her own notes, and thus increases her circulation. If, on the 
other hand, she sell Government stock or exchequer bills, she receives 
payment in her own notes, and thus her circulation is diminished. An- 
other law, then, and one peculiar to the Bank of England is, that her 
circulation is affected by the purchases and sales of Government se- 
curities. 

" As the payment of the public dividends puts into circulation the notes 
of the bank, the receipt of the public revenue will of course withdraw 
her notes from circulation. A large amount of the public revenue is 
paid at the latter part of the year, and this probably is the main cause 
why the amount of the Bank of England circulation is always the lowest 
in the month of December. Although the circulation ebbs and flows four 
times in the year, yet the December * point is always the lowest point 
throughout the year ; and this is the case in every year, although the 
Bank of England is always open in December for short loans, the 
granting of which increases her circulation. This, then, is another law 
of the circulation. 

" If the bank purchase bullion with her notes, that will of course in- 
crease her circulation ; if she sell bullion, that will diminish her circula- 
tion ; and, as the bank is always open for the purchase of bullion at a fixed 
price, and as gold may at all times be withdrawn from her in payment 
of her notes, her circulation is subject to considerable fluctuation from 
this cause. There is not, however, any uniform correspondence between 
the amount of her circulationf and the amount of her bullion ; for when 
she pays the public dividends, she increases her notes, but diminishes her 
bullion ; and when she receives the public revenue, as in December, her 
circulation is diminished, but the bullion is increased. These contrary 
fluctuations are occasioned by that portion of our currency which is under 
£5 consisting of the precious metals ; but they do not impugn the law 
which states that the purchase of gold increases, and the sale of gold di- 
minishes, the amount of her circulation. 

" We have thus traced those peculiar laws which regulate the monthly 
revolutions of the circulation of the Bank of England. We shall now 
proceed to its annual revolutions. 

" Any of the causes of the monthly fluctuations of the circulation of 
the Bank of England, if called into operation more in one year than in 
another, may become causes of annual fluctuations. But the most uni- 
form and permanent cause of annual fluctuation appears to be made by 
the purchases and sales of bullion. The word ' bullion,' in the bank returns, 
means gold and silver, whether coined or uncoined, and whether lying at 
the head office or at the branches. When the foreign exchanges are in 

* There was an exception to this law in December, 1843, in consequence of the 
calling in of the light sovereigns. 

t The word " circulation " means of course the amount of notes in the hands of the 
public. Since the passing of the Act of 1844, the word has been sometimes used in a 
more extended sense, so as to include also the notes in the banking department of the 
Bank of England. 

242 



The Bank of England. 

favor of this country, bullion is imported and sold to the Bank of Eng- 
land ; and when the exchanges are unfavorable, gold is exported, and 
the exporters obtain the gold from the Bank of England, either by pur 
chase or by demanding payment of her notes. In most cases, however, 
the circulation does not fluctuate so much as the bullion. For when notes 
are issued against a large importation of bullion, money becomes abun- 
dant and cannot be employed, and hence it is lodged by bankers and others 
in the Bank of England, on deposit. But so long as the bank keeps her 
securities of the same amount, the increase of the bullion will always be 
about equal to the increase of the circulation and the deposits added to- 
gether. And, on the other hand, when an adverse exchange draws bul- 
lion from the bank, the deposits decrease as well as the circulation ; and 
the decrease in both together will be equal to the amount of gold with- 
drawn ; that is, supposing the securities to remain the same. 

" By 4 securities ' is meant Government stock, exchequer bills, loans, 
discounted bills, or any thing else on which the bank may have advanced 
money. It is a principle of management by the bank, to keep the total 
amount of their securities equal, or nearly so ; and so long as this rule is 
acted upon, the tendency of exportations or importations of bullion to 
produce the variations we have described, must be considered as one of 
the laws of the circulation." 

One Bank of Issue. 

Mr. Cotton, who was the Governor of the Bank of England when the 
Act of 1844 was passed, stated in the evidence before a Committee of 
the House of Commons, in 1848, that the ultimate object of that Act was 
the establishment of one bank of issue. (Commons, 4561.) I was ex- 
amined on this subject before the committee on banks of issue, in the year 
1841. The following is a summary of my evidence : — 

1. If we had only one hank of issue we should have sometimes too 
much money and sopietimes too little for the wants of trade. — " I think it 
is one of the inconveniences of a metallic currency, and would, in fact, be 
one of the inconveniences of a sole bank of issue, that at one part of the 
year we should have too much money, and at another part too little ; be- 
cause, as money would not fluctuate in amount, and the demands of trade 
would fluctuate, the amount of money would not be proportionate through- 
out the year to the demands of trade." "I have shown from 

Appendix 34, that even taking the whole circulation together, there is a 
difference varying from two to four millions, in the total amount of the 
circulation ; and, therefore, after supposing all these transfers to have 
taken place, if they could have taken place at all, and that the surplus 
of one district was to supply the wants of another, still there would be a 
very great inequality in the amount of money, as compared with the de- 
mands of trade." 

" It appears from Appendix 34, that the total amount of notes in Eng- 
land, Scotland, and Ireland, varies very considerably in different months 
of the year. Supposing, then, that you had one bank, and that all the 
notes in circulation were the notes of that one bank, which did nothing 

243 



A Treatise on Banking. 

but issue notes against gold, and gold against notes, how would you em- 
ploy those notes which were not wanted in the slack periods of the sea- 
son ? " " It is evident from Appendix 34, that during some part 

of the year there is not employment for the entire amount of money that 
is required in another season of the year ; and if you had one bank 
of issue, as you could not contract the circulation, you would have a 
surplus circulation, which would have the effect of lowering the rate of 
interest, and promoting speculation." 

2. One hank of issue would reduce the means of the country bankers 
to afford assistance to their customers, and hence cause great distress, 
especially in the agricultural districts. — " What would be the effect 

which you think it would produce upon country bankers ? " "I 

think the banks, in the first place, having to pay off their notes, it would 
reduce their funds, from which they now give accommodation to their 
customers ; and in order to find funds to pay off those notes, they would 
have to recall loans, and to reduce discounts to such a degree as to cause 
considerable distress throughout the country, and more especially in the 
agricultural districts." 

3. The bankers would be compelled to increase their charges. — 
" What effects do you imagine would ensue when the measure had once 

been carried into effect ? " " After the meaure had once been 

carried into effect, the charges which the country bankers would be com- 
pelled to make upon that accommodation which they would still have the 
power of affording, must be considerably increased." 

" Why ? " " Because they would then get no profit upon the 

notes ; at present they can afford to advance money at a low rate of in- 
terest when issued in their own notes, because of the profit upon those 
notes. When I was in Ireland, I discounted bills at the same rate which was 
charged by the Bank of England here, and for the same reason, because 
I issued my own notes ; but if the country bankers had to bring the money 
from a distance and lend it to their customers, they must get a greater in- 
terest from their customers than they could get by employing in London 
or elsewhere, and hence they must make, either in the form of interest, 
or in the form of commission, heavier charges than they made before." 

4. One bank of issue would cause some of the smaller banking estab- 
lishments to be discontinued. — " The profit on the circulation being thus 
reduced, there would be a further effect by the limitation of banking es- 
tablishments ; for some of those establishments are so small, and estab- 
lished in remote places, that they would scarcely pay the expense of con- 
ducting them, unless for the profits of the circulation ; and yet the with- 
drawal of those establishments, though connected with no great profit to 
the bank, would be attended with very considerable loss and incon- 
venience to the inhabitants of those places, because those banks act as 
receivers of the surplus capital, and hence they are useful to persons who 
have money to place in those banks ; they act as discounters and granters 
of loans, and hence they are useful to the productive industry of the 
country ; they are also useful as banks of remittance, for the purpose of 
making payments from those places elsewhere, and hence they are useful 
to traders ; and those useful purposes, as far as many small banks are 

244 



TJie Bank of England. 

concerned, would be altogether annihilated, if those establishments did 
not issue their own notes." 

" In your opinion, the suppression of their circulation would render it 
necessary for them to charge a higher commission upon their operations, 
or a higher interest upon the loans which they make ? " " With re- 
gard to those small establishments, I do not think any rate of commission 
could pay the expense : with regard to the larger establishments, you 
might make up for the deficiency of profit upon the circulation by an in- 
creased charge of commission ; but with regard to small establishments, in 
remote places, the business is not sufficient, even with the charge of com- 
mission, to pay the expense without the profits of the circulation : annihi- 
lation of the circulation would lead to annihilation of the bank." 

5. One bank of issue would lead to the substitution of bills of exchange, 
or some other form of credit currency. — " Do you conceive that it would 
have any efFect upon what you have called the amount of the circulation, 

which in your opinion is required at different times of the year ? " 

" I think it would have a considerable effect generally in the reduction of 
the circulation ; because if the circulation were- issued by one single bank, 
the local bankers in the respective districts would have no interest in in- 
creasing the amount of that circulation, and hence, in places where it 
could be done, the bankers would most likely have recourse to a bill cir- 
culation, and they would substitute bills for the circulation of this one 
bank of issue. We know that at Manchester and Liverpool, and in other 
places in that district, a bill circulation, a short time ago, was almost the 
entire circulation ; and it was not till the Bank of England established 
branches in those places, that the bill circulation became considerably re- 
duced ; and even then the bank obtained a circulation in those places only 
by offering their notes to country bankers at a reduced rate of interest. 
Now, if you had only one bank of issue, it is not to be supposed that the 
country bankers would obtain those notes at a reduced rate of interest, 
and consequently they would have no advantage in getting them into cir- 
culation ; they would fall back upon their bill circulation, upon which they 
got a profit, and the amount of note circulation would, I think, be consid- 
erably reduced." 

6. With one bank of issue, the reactions of the Foreign Exchanges 
would produce great and universal distress, and yet not accomplish that 
constant conformity between the London and country circulation which is 
sought to be attained. — " Do you conceive that such a change as has 
been contemplated, namely, the abolition of country bank-notes, would 

produce any effect upon the foreign exchanges ? " " The effect 

upon the foreign exchanges would depend upon the principle upon which 
the single bank of issue was conducted. If conducted merely by issuing 
gold for notes and notes for gold, I consider that when the foreign ex- 
changes were favorable, and brought in a large amount of gold, then there 
would be a large amount of notes put into circulation. I think that was 
the case in 1837 and 1838, although the Bank of England did not issue 
to such an extent, as, upon the principle assumed, this one bank of issue 
would be compelled to do. I consider that thus this large amount of notes 
put into circulation against the importation of gold would reduce the rate 

245 



A Treatise on Banking. 

of interest, would excite speculation, and lead to foreign investments ; that 
a reaction would then take place, and the amount of contraction would be 
very considerable, so as to produce very great distress." 

" Now, whether you have different banks, or whether you have only 
one bank, if there is a certain amount of circulation in the country, and a 
certain amount in London, and the Bank of England, or the central bank, 
purchase a large amount of bullion in London, that immediately disturbs 
the proportion that existed between the London circulation and the country 
circulation ; and, on the other hand, if there is a demand for bullion to go 
abroad, and bullion is sold at the central office, that will contract the circu- 
lation, and contract it much more than it could be immediately contracted 
in the country. If, therefore, the liability to a disproportion in amount be- 
tween the country and the London circulation is a defect in the existing 
system, it is a defect which the establishment of only one bank of issue 
will not remedy." 

7. The establishment of one bank of issue would embarrass the Fiscal 
operations of the Government. — " I may now state, with reference to the 
payment of the public dividends, that the Bank of England advances 
loans in December, before the dividends are paid, which loans are dis- 
charged after the dividends are paid, and thus the fluctuation in the cur- 
rency is very considerably diminished from what it otherwise would be. 
Now, if we had a bank that could not do this, if the currency were issued 
upon what have been called currency principles, then the Chancellor of 
the Exchequer must have the whole amount of the January dividends in 
his strong room before he could pay those dividends. Out of the circula- 
tion of England and 'Wales, consisting of about £ 28,000,000, you must 
collect eight millions and a half, and lock them up in the custody of *the 
Government previously to the payment of the dividends ; then you pay 
out in a mass these eight millions and a half, and that in a state of con- 
tracted currency ; and thus you go on, four times in the year, producing 
the most violent and most extravagant fluctuations : whereas now, by 
the excellent plan adopted by the Bank of England, in issuing her notes 
before the payment of the dividends, by means of loans, which are dis- 
charged after the payment of the dividends, notwithstanding you pay eight 
millions and a half of dividends, you produce a fluctuation in the currency 
of only two millions and a half." 

8. The principle of one bank of issue cannot be applied to the various 
currencies of the United Kingdom. — " What is the general conclusion 

which you propose to draw from the tables you have put in ? " 

" The general conclusion I would draw is, that the Bank of England is 
governed by certain laws which do not apply to the country circulation ; 
that the country circulation of England is also governed by laws pecu- 
liar to itself; that the circulation of Ireland is also governed by laws pe- 
culiar to itself; that the circulation of Scotland is also governed by laws 
peculiar to itself; that those respective circulations are all governed by 
uniform laws, as is shown by their arriving at nearly the same point at the 
same period of the year ; and therefore that you cannot introduce any 
system by which all those various circulations, governed by different laws, 
can be amalgamated into one system ; that such a system would be at 

246 



The Bank of England. 

variance with itself, and would tend to destroy that beautiful system of 
country banking which now exists in this country, — a system which 
has tended very much to the prosperity of this country, which, by receiv- 
ing the surplus capital of different districts, and giving out the capital for 
the encouragement of trade, calls forth all the natural resources of the 
country, and puts into motion the industiy of the nation, and at the same 
time supplies a circulation which expands and contracts in each district 
according as it is required by the trade or agriculture of the district. 
Those expansions or contractions take place at different periods of the 
year in different districts; the circulation expands when the wants of 
trade require it, and when no longer wanted it again returns ; and I think 
this beautiful system, in the language of the resolutions passed by the 
deputies from the joint-stock banks, 4 has greatly promoted the agricul- 
ture, trade, mining, and general industry of the nation, and that equal ad 
vantages cannot be produced by one bank of issue.' " 

We shall conclude this section by copying the correspondence between 
the First Lord of the Treasury and the Chancellor of the Exchequer and 
the Bank of England, respecting the suspension of the Act of 1844. 

" Gentlemen, " Downing Street, 25th October, 1847. 

" Her Majesty's Government have seen with the deepest regret the pressure 
which has existed for some weeks upon the commercial interests of the country, and 
that this pressure has been aggravated by a want of that confidence which is necessary 
for carrying on the ordinary dealings of "trade. 

" They have been in hopes that the check given to transactions of a speculative char- 
acter, the transfer of capital from other countries, the influx of bullion, and the feeling 
which a knowledge of" these circumstances might have been expected to produce, 
would have removed the prevailing distrust. 

" They were encouraged in this expectation by the speedy cessation of a similar 
state of feeling in the month of April last. 

"These hopes have, however, been disappointed, and ner Majesty's Government 
have come to the conclusion, that the time has arrived when they ought to attempt, by 
some extraordinary and temporary measure, to restore confidence to the mercantile 
and manufactui-ing community. 

" For this purpose, they recommend to the directors of the Bank of England, in the 
present emergency, to enlarge the amount of their discounts and advances upon ap- 
proved security ; but that, in order to retain this operation within reasonable limits, a 
high rate of interest should be charged. 

" In present circumstances, they would suggest that the rate of interest should not 
be less than 8 per cent. 

" If this course should lead to any infringement of the existing law, Her Majesty's 
Government will be prepared to propose to Parliament on its meeting, a Bill of In- 
demnity. They will rely upon the discretion of the directors to reduce as soon as pos- 
sible the amount of their notes, if any extraordinary issue should take place, within 
the limits prescribed by law. 

" Her Majesty's Government are of opinion that any extra profit derived from this 
measure should be carried to the account of the public, but the precise mode of doing 
so must be left to future arrangement. 

"Her Majesty's Government are not insensible of the evil of any departure from the 
law which has placed the currency of this country upon a sound basis ; but they feel 
confident that, in the present circumstances, the measure which they have proposed 
may be safely adopted, and at the same time the main provisions of that law. and the 
vital principle of preserving the convertibility of the bank-note, may be firmly main- 
tained. 

"We have the honor to be, Gentlemen, 

" Your obedient humble Servants, 
" The Governor and Deputy Governor (Signed,) "J. Bussell. 

of the Bank of England." " Charles Wood. 

H ■ 247 



A Treatise on Banking. 

4 

" Gentlemen, "Bank of England, 25th October, 1847. 

" We have the honor to acknowledge your letter of this day's date, which 
we have submitted to the Court of Directors, and we inclose a copy of its resolutions 
thereon. 

" We have the honor to be, Gentlemen, 

" Your most obedient Servants, 

" James Morris, Governor. 
" H. J. Prescott, Deputy Governor. 
" To the First Lord of the Treasury and the 
Chancellor of the Exchequer." 



" At a Court of Directors, at the Bank of England, Monday, 25th October, 1847 : 
Resolved, — 

" 1 . That this Court do accede to the recommendation contained in the letter from 
the First Lord of the Treasury and the Chancellor of the Exchequer, dated this day, 
and addressed to the Governor and Deputy Governor of the Bank of England, which 
has just been read. 

" 2. That the minimum rate of discount on bills not having more than 95 days to 
run be 8 per cent. 

" 3. That the advances be made on bills of exchange, on stock, exchequer bills, and 
other approved securities, in sums of not less than two thousand pounds, and for a pe- 
riod to be fixed by the Governors, at the rate of 8 per cent, per annum." 



"Gentlemen, " Downing Street, 23d November, 1847. 

" Her Majesty's Government have watched, with the deepest interest, the 
gradual revival of confidence in the commercial classes of the country. 

" They have the satisfaction of believing that the course adopted by the Bank of 
England, on their recommendation, has contributed to produce this result, whilst it has 
led to no infringement of the law. 

" It appears, from the accounts which you have transmitted to us, that the reserve 
of the Bank of England has been for some time steadily increasing, and now amounts 
to £ 5,000,000. This increase has, in a great measure, arisen from the return of nptes 
and coin from the country. 

" The bullion exceeds £10,000,000, and the state of the exchanges promises a fur- 
ther influx of the precious metals. 

" The knowledge of these facts by the public is calculated to inspire still further con- 
fidence. 

'' In these circumstances, it appears to her Majesty's Government that the purpose 
which they had in view in the letter which we addressed to you on the 25th October 
has been fully answered, and that it is unnecessary to continue that letter any longer 
in force. 

" We have the honor to be, Gentlemen, 

" Your obedient humble Servants, 

(Signed,) "J. Eussell. 

1 The Governor and Deputy Governor " Charles Wood. 

of the Bank of England." 



" Gentlemen, "Bank of England, 23d November, 1847. 

" We have the honor to acknowledge the receipt of your letter of this day's 
date, in which you communicate to us that in consequence of the gradual revival of 
confidence in the commercial classes of the country, it appears to her Majesty's Gov- 
ernment that the object they had in view in the letter they addressed to us on the 25th 
October has been fully answered, and that it is unnecessary to continue that letter any 
longer in force. 

" We have the honor to be, Gentlemen, 

" Your most obedient Servants, 

"James Morris, Governor 
"H. J. Prescott, Deputy Governor. 
H To the First Lord of the Treasury and the 
Chancellor of the Exchequer." 

248 



Of Banking Institutions. 



Section II. — THE LONDON PRIVATE BANKERS. 

By the last Bank Charter Act (7 & 8 Vict. c. 32, s. 21), passed in the 
session of 1844, it was enacted " that every banker in England and Wales, 
who is now carrying on, or shall hereafter carry on, business as such, 
shall, on the first day of January in each year, or within fifteen days 
thereafter, make a return to the Commissioners of Stamps and Taxes al 
their head office in London, of his name, residence, and occupation, or in 
the case of a company or partnership, of the name, residence, and occu- 
pation of eveiy person composing or being a member of such company or 
partnership, and also the name of the firm under which such banking 
company or partnership carry on the business of banking, and of every 
place where such business is carried on ; and if any such banker, com- 
pany, or partnership, shall omit or refuse to make such return within fif- 
teen days after the said first day of January, or shall wilfully make oiher 
than a true return of the persons as herein required, every banker, com- 
pany, or partnership so offending, shall forfeit and pay the sum of £ 50 ; 
and the said Commissioners of Stamps and Taxes shall, on or before the 
first day of March in every year, publish in some newspaper circulating 
within each town or county respectively, a copy of the return so made by 
every banker, company, or partnership carrying on the business of bank- 
ers within such town, or respectively, as the case may be." 

This was the first time that any of the banking companies in London 
were required to make returns to Government of the number or names of 
their partners. All banks that issued notes were required when they ap- 
plied for a license, to name tneir partners ; but as none of the London 
bankers issued notes, they required no license, and made no return. Nor 
did the joint-stock banks established in London, make any returns to the 
Government of their partners. For as they did not possess, until the 
year 1844, the power of suing and being sued in the name of their public 
officers, they did not register, at any Government office, the names of 
their partners, though, in some cases, these names were appended to the 
Annual Reports of the directors. This Act (7 & 8 Vict. c. 32) came 
into operation in January, 1845, and we have now, therefore, for the first 
time, the means of obtaining the names of all the partners in all the bank- 
ing establishments throughout England and Wales. (These are inserted 
every year in the Banking Almanac.) 

The Act not only requires that the bankers shall make these returns 
between the first and fifteenth of January in each year, it requires also, 
that the Commissioners of Stamps and Taxes shall publish them before 
the first of March following, in some newspaper that circulates within the 
town or county in which the bankers making the return carry on their 
business. The returns from the London banks are published in supple- 
ments to the London Gazette, which we presume is considered to be a 
newspaper within the meaning of the Act. 

The particulars required to be returned by the Act, and stated in the 
Gazette, are, the name of the firm or company ; the name, residence, 
and occupation of the persons of whom the company or partnership con- 

249 



A Treatise on Banking. 

sists ; and the name of the place or places where the business is carried 
on. 

The London banking establishments, according to the last return, con- 
sist of fifty-eight partnerships, each not having more than six partners ; 
and of five public companies which are usually styled joint-stock banks. 
The former may be divided into three classes : — 

I. Those who are members of the Clearing-house. 

II. Those located west of Temple-bar, but are not members of the 

Clearing-house. 

III. Those located east of Temple -bar. 



1. A List of those London Banking Firms who attend the Clearing-house. 



Name of the Firm. 

1 . Barclay, Bevan, Tritton, & Co. 

2. Barnard, Dimsdale, & Co. 

3. Barnett, Hoare, & Co. . 

4. Bosanquet, Franks, & Whatman 

5. Brown, Janson, & Co. . 

6. Curries & Co 

7. Denison, Heywood, Kennard, & Co. 

8. Fullers & Co 

9. Glyn, Halifax, Mills, & Co. . 

10. Hanburys, Taylor, & Lloyd 

11. Hankey & Co 

12. Jones, Lloyd, & Co. . 

13. Lubbock, Forster, & Co. 

14. Martins, Stones, & Martins 

15. Masterman, Peters, Mildred, Masterman 

Co 

16. Prescott, Grote, Cave, & Co. . 

17. Price, Marryatt, & Co. . 

18. Bobarts, Curtis, & Co. 

19. Rogers, Olding, & Co. . 

20. Sapte, Muspratt, Banbury, & Co. 

21. Smith, Payne, & Smith . 

22. Spooner, Atwoods, & Co. 

23. Stevenson, Salt, & Sons 

24. Williams, Deacon, Labouchere, & Co. 

25. Willis, Percival, & Co. . 

Total, 104 



No. of 
Partners. 

. five 

two 
. five 

three 

six 

four 
. four 

three 
. six 

five 
. four 

five 
. three 

four 

] six { 

four 
. two 

four 
. four 

three 
. six 

two 
. three 

five 
. six 



partners. 



Residences. 
54, Lombard-street. 
50, Cornhill. 
62, Lombard-street. 
73, Lombard-street. 
32, Abchurch-lane. 
29, Comhill. 
4, Lombard-street. 
65, Moorgate-street. 

67, Lombard-street. 
60, Lombard-street. 
7, Fenchurch-street. 
43, Lothbury. 

11, Mansion-House-street. 

68, Lombard-street. 

34 & 35, Nicholas-lane, Lorn- 

bai'd-street. 
62, Threadneedle-street. 
3, King William-street. 
15, Lombard-street. 
29, Clement's-lane. 
77, Lombard-street. 
1, Lombard-street. 
27, Gracechurch-street. 
20, Lombard-street. 
20, Birchin-lane. 
76, Lombard-street. 



2. A List of those Banking Firms West of Temple Bar, who are not Members of the Clearing- 
house. 



Name of the Firm. 

1. Bouverie, Norman, & Murdock 

2. Call, Marten, & Co. . 

3. Cocks, Biddulph, & Co. 

4. Coutts & Co. . 

5. Messrs. Drummond . • 

6. Hallett, Robinson, & Co. . 

7. Herries, Farquhar, & Co. 

8. Charles Hopkinson & Co. 

9. Ransom & Co. 

10. Sir Samuel Scott & Co. . 



250 



No. of 
Partners. Residences. 

three 11, Haymarket. 

three 25, Old Bond-street, 

five 43, Charing- Cross, 

four 58 & 59 Strand, 

five 49, Charing Cross, 

four 14, Great George-street, 

four 16, St. James's-street. 

two 3, Regent-street. 

four 1, Pall Mall East, 

three 1, Cavendish-square 



London Private Bankers. 



Name of the Firm. 

11. Strahan, Pauls, & Bates 

12. Eichard Twining & Co. 



No of 
Partners. 

. four 
six 
Total, 47 partners. 



Residences. 
217, Strand. 
215, Strand. 



3. A List of the Banking Firms East of Temple Bar. 



Name of the Firm. 
Abraham Bauer & Co. . 
William and John Biggerstaff 
James Bult, Son, & Co. 
Child & Co. . 
Roger Cunliffe 
Cunliffes, Brooks, & Co. . 
Robert Davies & Co. . 
Dixon, Brooks, & Dixon . 
Drewett & Fowler 
John Feltham & Co. 
Goslings & Sharpe 
C Hill & Sons 
Messrs. Hoare 

Hugh & John Johnston & Co. 
Sir C. S- Kirkpatrick, Dalrymp 

gor, Twigg, & Co. . 
Pocklington & Lacy 
Praed, Pane. & Co. 
Puget, Bainbridge, & Co. . 
John Shank . 
John & W. S. Stride 
Thomas G. Tisdale 



e, MacGre- 



No. of 
Partners. Residences. 

one 71, King William-street, 

two 8, West Smithfield. 

two 85 & 86, Cheapside. 

four 1, Fleet-street, 

one 24, Bucklersbury. 

two 24, Lombard-street. 

two 187, High-st., Shoreditch. 

three 25, Chancery-lane, 

two 4, Princes-street. 

two 42, Lombard-street, 

five 19, Fleet-street, 

two 17, West Smithfield. 

five 37, Fleet-street, 

three 15, Bush-lane. 

four 29, Gracechurch-street. 



two 
four 
four 
one 
two 
one 



60, West Smithfield. 
189, Fleet-street. 
12, St. Paul's Churchyard. 
76, West Smithfield. 
41, West Smithfield. 
15, West Smithfield. 



Total, 54 partners. 



The Clearing Banks are banks of deposit and of discount, and they act 
as agents to the country banks. The banks in Fleet-street and in West- 
minster do not usually discount bills for their customers, nor act as agents 
to country banks. Their connections embrace chiefly the clergy, the 
gentry, and the nobility. Their loans to their customers are chiefly upon 
landed security, and they are supposed to hold a large amount of exche- 
quer bills and other Government securities. None of the London bankers 
allow interest on deposits, or charge commission on town accounts. Those 
who act as agents to country banks charge a commission on the debit side 
of the account, and some of them allow interest on the daily balance. In- 
stead of a pro rata commission, some country banks pay their agent by a 
fixed annual payment, or by keeping in his hands a certain balance with- 
out interest. None of the present London bankers have ever issued notes, 
though, until the year 1844, they had legally the power of doing so. 
Several of them issue " Circular Notes," for the use of travellers on the 
continent. 

The following is a summary of part of the evidence delivered before 
the Bank Committee of 1832, by George Carr Glyn, Esq., respecting the 
London bankers : — 

" There are sixty-two private banks in the metropolis, none of which for the last fifty 
years have issued notes of their own, though it would seem that such of them as con- 
sist of fewer than six partners might lawfully circulate their own paper if they pleased. 
As they act entirely with the Bank, of England paper, it is doubtful whether there be 

251 



A Treatise on Banking. 

any limit to the number of partners of which London private banks may consist 
They receive deposits, upon which they pay no interest. The system of allowing in- 
terest on deposits was formerly tried in London ; but the houses that attempted it in- 
variably failed. The deposits held by the London bankers are generally composed of 
very large sums, which are necessarily payable on demand ; and hence they cannot be 
made use of to the same extent as those which are intrusted to country bankers, and 
which, whenever interest is allowed, are usually left with them for a stipulated period. 
On the other hand, in all ordinary transactions, the London banks charge no commis- 
sion to their customers. 

" The London banks, in order to be able to meet their engagements, usually keep a 
large deposit, nearly equal, perhaps, to half of what they hold in reserve, in the Bank 
of England ; a portion of their current funds they necessarily hold at home in bank 
paper, and a small amount in gold. Their deposit in the bank they consider as so 
many notes in their drawer, liable to be called out by the daily fluctuations in the ac- 
counts of their customers. The balances in their hands, often very large, are frequently 
withdrawn without notice ; hence their intercourse is almost hourly with the Bank of 
England, from which they receive every facility. 

" In order to turn their funds to profit, the London bankers employ as much money 
as they can amongst their customers. They invest a considerably larger proportion 
of their deposits in bills of exchange and promissory notes, than in public securities. 
The city banker is, however, under a disadvantage in this respect, which is not felt by 
the banker at the west end of the town. The latter may, to a certain extent, depend 
upon the use of the money deposited with him, as his accounts are usually those of 
country gentlemen, and individuals out of trade ; whereas the former, whose accounts 
are principally those of persons actively engaged in commercial or money operations, 
can hardly know three days beforehand what the amount of his deposits may be at any 
given period. The London bankers are obliged to employ their money occasionally 
at a very low rate of interest. In some cases, it may have been within the last twelve 
months, 2£ per cent. ; but the average has been from 3 to 3£, and it has fairly kept at 
that rate. The highest rate has been 4 for short bills, but 5 has been charged for bills 
of twelve or eighteen months." 

We shall now describe the mode of conducting the clearing, or the way 
in which many of the London bankers make their exchanges with each 
other. These exchanges are made at the Clearing-house. At this house, 
which is situated in Lombard-street, in a part of the old Post-office, a 
clerk attends from each banking-house twice a day. First, he goes at 
eleven o'clock with those bills which he has upon other bankers. Each 
bill is receipted by the house through whom it is presented, and the 
cheques have the name of the house written across them. He drops the 
bills payable at each house in a separate drawer provided for the purpose, 
and he enters in his book, under separate accounts, those bills that may 
be dropped into his drawer. At about twelve he returns home. He goes 
again at three o'clock with a fresh quantity of bills and cheques, which he 
delivers in the several drawers as before. He then enters in his book 
those cheques that may have been delivered in his drawer. From three 
to four he receives further supplies of cheques brought to him from home 
by other clerks. These cheques he enters in his book, and they are then 
delivered in the proper drawers. As soon as the clock strikes four, no 
further cheques are taken. He then casts up each account, and strikes 
the balance. These balances are then transferred to the balance-sheet. 
The balance-sheet is a half sheet of paper, with a list of clearing bankers 
printed alphabetically in a row down the middle. On the left-hand side 
is a space for the debtors. On the right-hand side is a space for the cred- 
itors. The clerk begins with the house at the top of the list. If this 
house owes him money, he places the balance on the left side of the 

252 



The Clearing- House. 

name. If he owes money to this house, he places the amount on the 
right side. Thus he proceeds through the whole list. He then goes to 
the clerk of each house, and calls the balance to him ; and if they beth 
agree, they mark it with a pen. If they differ, they examine where the 
error lies, and make the accounts agree. He then casts up each side of 
the balance-sheet, and strikes the balance. If the total amount of debits 
exceeds the total amount of credits, he will have to receive the amount of 
the difference. If the credits exceed the debits, be will have to pay the 
difference. 

If a banker does not choose to pay a bill or draft brought home from 
the Clearing-house, it is sent back, and dropped in the drawer of the house 
by whose clerk it was presented. On the bill or draft is stated the reason 
for its non-payment : this is usually, "no effects," or "no advice" ; some- 
times, " not sufficient effects," or " refer to the accepter." If this draft 
was delivered, in the first instance, in the morning clearing (that at twelve 
o'clock), it is usually returned before four o'clock ; but in all cases, it 
must be returned before five o'clock, or else it will not be taken back, and 
the banker is considered to have paid it. If returned after four o'clock, 
it is debited and credited on the back of the balance-sheet. 

All this is usually done by five o'clock, when the clerks go home for a 
Bhort time for two purposes : one purpose is, to fetch the money they 
nave to pay ; and the other is, to see if their balance on the sheet agrees 
with the balance of the books at home. At about a quarter or half-past five 
they return, and any clerk who has money to pay, pays it to any clerk 
who has money to receive. It is common, however, for three or four 
clerks to form a sort of club, and pay principally among themselves. 
Hence, when one member of the club has money to pay, he will pay it 
to some member of the same club who has money to receive, in prefer- 
ence to paying it to any one else; by this means his friend obtains his 
money earlier than he otherwise might, and gets off sooner. It is obvious 
that all the money that is to be paid must be equal to all the money that 
is to be received. If this should not appear to be the case, there must be 
some error; and the Clearing-house is then said to be wrong. Two in- 
spectors are appointed with salaries, to detect errors of this kind by ex- 
amining and marking off the sheets. Their signature is also necessary be- 
fore any money can be paid from one clerk to another. 

All the articles in the clearing are entered at home in a book called the 
Clearing-Book. On the left-hand are entered the bills and drafts upoa 
other bankers. These are called the u clearing-out." On the right-hand 
are entered the drafts which are drawn upon the house, and which have 
come in from the clearing. These are called the " clearing-in." If the 
"ciearing-out" is a greater sum than the " clearing-in," the clerks say, 
"the clearing brings in" ; that is, the clearing clerk will bring in money 
from the Clearing-house. In the other case, they say, " the clearing 
takes out"; that is, he will takeout money from the Banking-house to 
pay away at the Clearing-house. The balance of this book should agree 
with the clearer's balance-sheet, excepting the differences of the preceding 
night, which he may have settled. When this is the case, the clearer is 
right; if not, he is wrong, and he must discover the error. The cle-are* 

253 



A Treatise on Banking 

may be wrong through errors made either in his own book at the Clear- 
ing-house, or in the Clearing-Book at home. The error at home may be 
either in the u clearing-in" or in the " clearing-out." If the error be in 
the clearing-out, it will make the Banking-house wrong; if in the clear- 
ing-in, it will not. Suppose, for instance, the clearing-out is wrong, cast 
£1,000 too much, the house will be £ 1,000 over, and the clearer will 
be £1,000 short. But if the clearing-in be wrong, cast £1,000 too 
much, it will not effect the balance of the house, because the Cash-Book 
will, consequently, be £ 1,000 less; and these two amounts, those of the 
Cash-Book and the Paid-Day-Book, (into which the amount of the Clear- 
ing-In-Book is entered,) are placed on the same side of the trial-paper. 
But this error will make the clearer wrong. The way in which the 
clearer discovers his errors is, by marking off his book against the Clear- 
ing-Book, and by recasting both the books. An error may have occurred 
at the Clearing-house. If the clearer has placed a wrong balance on his 
sheet", or has wrong cast his balance-sheet, the Clearing-house will be 
wrong, and the inspectors will make it their business to discover the error. 
But if the clearer has entered an article wrong in his book, and the clerk 
of the house upon whom the draft is drawn has entered it wrong also, 
then the Clearing-house will be right, and both these clearers will be 
wrong • one being as much over as the other is short. 

All the articles in the clearing-out must mark against either the jour- 
nals, the Received Waste-Books, or the Lists. To secure greater accuracy, 
the clearing-in is entered not only in the regular Clearing-Book, but also 
in another book by itself, which for distinction is called the Clearing-In- 
Book. The amount of the clearing-in is entered in the Paid-Day-Book 
previous to the daily balance. On the following morning, the Clearing 
In-Book is marked against the debit side of the Ledger, and the Ledger 
Folio placed against each entry. 

No gold, silver, or copper, is taken to the Clearing-house ; the differ- 
ences under £ 5, that may be left between the clerks who receive and pay 
with each other are carried to account on the following day. 

Country notes are not paid at the Clearing-house, but are taken round 
to the banking-houses, and exchanged for tickets called memorandums, 
which are passed through the afternoon clearing. The following is the 
form of these memorandums : — 

London, 1st May, 1827. 
Due to 3fessrs. Steady fy Co, 

One Thousand Pounds. 
For Country Notes, to be paid in the clearing of this day. 

For Messrs. Hope, Rich J- Co. 
£ 1,000. A Clerk. 

Drafts that are paid into the Banking-house after four o'clock are taken 
to the houses upon whom they are drawn " to be marked'' ; that is, it is 
asked if these drafts will be paid in the clearing of the next day. If so, 
one of the clerks marks the cheque by placing his initials upon it. If the 

254 



The Clearing House. 

cheque is refused to be marked, it is returned as dishonored, on the 
following day, to the person who has paid it in. Had it not been sent 
to be marked, the draft would not have been refused payment until the 
next day, and it could not be returned to the customer till the day after- 
wards. 

The operations on the Stock Exchange cause a great number of 
cheques to be drawn on bankers, and thus increase the operations at the 
Clearing-house. 

A person who wants to buy £ 100 consols, gives his order to a broker, 
and pays him possibly by a cheque on his banker, which the broker takes 
and pays to his own banker. He then buys the £ 100 consols from a 
jobber, and pays him by a cheque. The jobber possibly replaces this 
stock by buying a £ 100 consols from another broker who is ordered by 
his principal to sell that amount of stock. The jobber gives the broker 
his cheque upon his banker, and the broker probably will give his princi- 
pal the produce of the stock by a cheque. No money has passed between 
the parties, and the result of the whole is, that the buyer of the stock has 
£90 less in the hands of his banker, and the seller has £90 more. Four 
cheques have been drawn, and these have caused transactions with five 
different bankers. The total number of credit and debit operations in all 
the banks is eight. 

1. The banker of the buyer of the stock pays his cheque through the 
clearing, and debits his customer. 

2. The banker of the broker who buys the stock, credits him with the 
purchaser's cheque, and debits him for the cheque he gives to the jobber. 

3. The banker of the jobber credits him for the cheque he has received 
from the buying broker, and debits him for the cheque he gives to the 
selling broker. 

4. The banker of the broker who sells the stock credits him for the 
jobber's cheque, and debits him for the cheque he gives to his customer 
who is the seller. 

5. The banker of the seller credits him for the cheque of the broker, 
who has sold the stock, and will debit him for any cheque he may draw 
against it. 

Should neither the buyer nor the seller of the stock keep a banker, then 
only three cheques would be drawn. 

Besides these daily transactions arising out of real business, the brokers 
have large transactions in what are called u time bargains." This is 
what is usually meant by "gambling in the funds." The parties buy or 
sell consols against the next settling day. No real purchase or sale is 
ever intended. When the settling day arrives, the losing party has to pay 
the difference that has arisen from the fluctuations in the price. A settle- 
ment takes place among the brokers in a way somewhat resembling the 
settling between the bankers at the Clearing-house. All the differences 
are paid by cheques. A broker may give twenty, thirty, or forty cheques 
to as many different brokers, and he may receive an equal number from 
other brokers. All these cheques are paid by the respective bankers 
through the Clearing-house. Besides settling days for consols, there are 
also settling days for foreign funds, and for shares in railway companies. 

255 



A Treatise on Banking. 

The differences in these cases are also settled by cheques upon the clear- 
ing bankers. 

Mr. Thomas, inspector of the Clearing-house, stated to the Bullion 
Committee, in the year 1810, that the average amount of drafts paid 
every day at the Clearing-house was £ 4,700,000 ; and the average 
amount of the balance paid in bank notes was £ 220,000. Sometimes 
the bank notes brought to the Clearing-house of an evening exceeded 
£500,000, and on settling days at the Stock Exchange, the amount 
of drafts paid was above £ 14,000,000, At that time the Clearing-house 
had been established thirty -five years, and the number of clearing bankers 
was forty-six. 

The following is a copy of a Clearing Balance-Sheet, and a List of the 
Bankers who clear. The name of the house to whom each sheet belongs 
is placed at the top, and is then, of course, omitted in the alphabetical 
list : — 



Debtors. 

£. 8. d. 




Creditors. 
£ 8. d. 








Barclay. 

Barnard 

Barnetts 

Bosanquet 

Brown 

Curries 

Fullers 

Glyn 

Hanbury 

Hankey 

Jones 

Lubbock 

Masterman 

Preseott 

Price 

Roberts 

Rogers 

Smith 

Spooner 

Stevenson 

Stone 

Vcre 

"Williams 

Willis 






i 



The following is the amount of transactions passed through the clearing 
by each banking-house, during the year 1840 : — 



107,000,000 Barclay. 

12,000,000 Barnard. 

50,000,000 Barnetts. 

8,500 000 Bosanquet. 

7,000,000 Brown. 

17,500,000 Curries. 

26,600,00C . . . Dennison. 



256 



£ 

8,000,000 Dorrien. 

7,500,000 Fullers. 

105,300,000 ..... Glyn. 

24,000,000 Hanbury. 

15,000,000 Hankey. 

104,000,000 Jones. 

24,200,000 Ladbroke. 



The Clearing-House. 



£ 
33.700. 
90,000. 
30.000. 
15,300, 
80,880, 
9,000, 

16,000. 
64,000, 



000 
000 
000 
000 
600 
000 

000 
000 



Lubbock. 

Masterman. 

Prescott. 

Price. 

Robarts. 

Rogers. 

Stevenson. 

Spooner. 

Smith, 



£ 
37,000.000 
10,400,000 



56,000.000 
20,500,000 

974,580,000 



Stone. 
Vere. 
Weston. 

Whitmore. 

Williams. 

Willis. 



The following is an account of the aggregate demands made through the 
Clearing-house, and the amount of bank notes with which they were dis- 
charged, during the year 1839 : — 



January 
February 
March . 
April . 
May 
June 
July . 



Demands. 

£82.762.400 
76,164,700 
75,879,200 
85,839,200 
SO. 587,600 
67.413.900 



Batik Notes. 
—£6.348.500 

— 4.960,200 

— 5.621,500 

— 5,S36,000 

— 5.615.000 

— 5.060.000 



August 

September 

October 

November 

December 



Demands. 
£87.610,500 
74,237.700 
87.478.200 
81.729,200 
70,833,800 



Bank Notes. 
-£6.164,900 

- 5.129.800 

- 5.706.800 

- 4,793.100 

- 4,755,000 



83,865,200 — 6,284,800 



£954,401,600 £66,275,600 



A kind of clearing takes place between the Bank of England and some 
of the London bankers. 

Most of the London bankers keep a drawing account with the Bank of 
England. And when cheques or bills are presented to a banker for pay- 
ment by the bank, he pays them by a cheque, which is passed to the 
debit of his account. It is also said that some bankers have an agreement 
with the bank that no cheque shall be posted to their debit until after three 
o'clock in the afternoon. Hence, if the bankers draw large cheques in 
the morning, they can provide for them in ihe course of the day. This 
so far resembles a clearing, that no notes pass in settling the daily trans- 
actions. But it is merely an arrangement between the Bank of England 
and each banker individually, and has no reference to any settlement of 
accounts among the bankers themselves. The following is the evidence 
on this subject given before the Committee of the House of Commons, by 
the Governor of the Bank of England, in reply to questions put by Mr. 
Glyn, a London banker : — 

" Mr. Glyn. — Do not the private banks clear with the Bank of England, by the use of 
cheques upon the Bank of England? — They have the option of doing so. 

" That is a substitute for the notes which would be used, and that so far economises the 
bank-notes ? — Yes. 

" Does not that observation also apply to joint-stock banks? do not they clear, through 
the medium # of cheques, upon the Bank of England ? — Yes ; but as far as regards clearing, 
it is a question between the joint-stock banks and the private bankers. 

" But so far as regards the private banks and the Bank of England, the economy of 
bank-notes between them is carried to the greatest possible extent, inasmuch as the 
private banks use cheques upon the Bank of England? — Yes." {Commons, 3266- 
3270.) 

The banks of Newcastle on Tyne adopted a somewhat similar, but a 
more extensive plan of clearing, through the means of the branch of thu 
Bank of England. The plan was thus described in a letter addressed to 
me, about two years ago, in reply to my inquiries on the subject : 

257 



A Treatise on Banking. 

" The banks here do not clear. They used to do so, and for that pur- 
pose had a room at Messrs. Ridley's bank ; but, from some objection 
raised by Messrs. Lambtons, the system was discontinued. 

" They have, however, adopted a plan of exchanges, which, from the 
facilities granted by the branch bank, answers nearly the same purpose as 
a clearing, without the expense. I must inform you that they all have 
drawing accounts with the branch bank, and the plan now adopted is as 
follows, namely : — 

" At two o'clock every day, each bank pays in, to its credit with the 
branch bank, all bills and cheques on other banks received up to that 
hour. The amounts so paid in are passed to credit in totals, and the bills 
and cheques are then sorted into charges upon the respective banks, and 
presented at their counters by the Bank of England, who receive in pay- 
ment a cheque upon themselves. So that, in fact, each bank is credited 
in total with what it pays in, and debited with the cheque given for what 
it has to pay ; thus obviating the necessity of any bank-notes passing. 

" This of course gives the branch bank some trouble, and they there- 
fore strictly confine the facility to those banks issuing Bank of England 
paper ; and as the Union Bank issues its own paper, it is consequently ex- 
cluded, and is obliged to exchange separately with the other bankers." 

Several of the bankers at the West-end of London keep an account 
with a City bank. They do not, however, in all cases pass the whole of 
their, transactions through the Clearing-house. They pay and receive 
with the clearing bankers individually, and sometimes leave their unpaid 
bills with their city agent. They occasionally pay into the City bank the 
cheques they may have on the clearing bankers, and on the other bank- 
ers too. 

The stock-brokers usually write across every cheque they draw, the 
name of the banker of the party in whose favor it is drawn ; and if they 

do not know the name of the banker, they write " & Co." The 

banker on whom it is drawn will then pay it only in the clearing. If a 
broker intends a cheque to be paid in bank notes across the counter, he 
writes on it the word " cash " ; such cheques are given only to persons 
who do not keep bankers. 

Many persons now cross the cheques they draw with the name of a 
banker, to guard against fraud in case the cheques should be lost or 
stolen. The cheque can then only be paid to the banker whose name is 
on the cheque. If it be crossed with the names of two bankers it will be 
refused payment to either, unless the matter be satisfactorily explained. 

Clearing bankers never make payments to each other, except through 
the clearing. 

The effects of the clearing-house are thus described by Mr. M'Culloch, 
in his Commercial Dictionary : — 

" By far the largest proportion both of the inland bills in circulation in the country, 
and also of the foreign bills drawn upon Great Britain, are made payable in London, 
the grand focus to which all the pecuniary transactions of the empire are ultimately 
brought to be adjusted. And in order still further to economise the use of money, the 
principal bankers of the metropolis are in the habit of sending a clerk eacli day to the 
Clearing-house in .uomoard Street who carries with him the various bills in the pos- 

258 



The London and Westminster Bank. 

session of his house, that are drawn upon other bankers ; and, having exchanged them 
for the bills in the possession of those others that are drawn upon his constituents, the 
balance on the one side or the other is paid in cash or Bank of England notes. By 
this contrivance the bankers of London are enabled to settle transactions to the extent 
of several millions a day, by the employment of not more, at an average, than 
£ 200,000 to £ 300,000 of cash or bank-notes. 

" In consequence of these and other facilities afforded by the intervention of bankers 
for the settlement of pecuniary transactions the money required to conduct the busi- 
ness of an extensive country is reduced to a trifle only, compared with what it would 
otherwise be. It is not, indeed, possible to form any very accurate estimate of the total 
saving that is thus effected ; but, supposing that fifty or sixty millions of gold and silver 
and bank-notes are at present required, notwithstanding all the devices that have been 
resorted to for economizing money for the circulation of Great Britain, it may, one 
should think, be fairly concluded, that two hundred millions would, at the very least, 
have been required to transact an equal amount of business, but for those devices. 
If this statement be nearly accurate, and there are good grounds for thinking that it is 
rather under than over-rated, it strikingly exhibits the vast importance of banking in a 
public point of view. By its means fifty or sixty millions are rendered capable of 
performing the same functions, and in an infinitely more commodious manner, that 
would otherwise have required four times that sum ; and, supposing that twenty or 
thirty millions are employed by the bankers as a capital in their establishments, no 
less than 120 or 130 millions will be altogether disengaged, or cease to be employed 
as an instrument of circulation, and made available for employment in agriculture, 
manufactures, and commerce." 



Section III. — THE JOINT-STOCK BANKS IN LONDON. 

London is the head-quarters of several joint-stock banks, who conduct 
their business operations in the provinces, in Ireland, or in the colonies. 
But we purpose here to notice only those joint-stock banks who carry on 
business as London bankers. These are five : — The London and West- 
minster Bank ; the London Joint-Stock Bank ; the Union Bank of London ; 
the Commercial Bank of London ; the London and County Banking Com- 
pany. 

I. — The London and Westminster Bank. 

I. Its History. — In the Act for renewing the Bank of England Char- 
ter, passed in 1833, it was declared to be the law, that companies or part- 
nerships consisting of more than six persons might carry on the business 
of banking in London. Immediately after the passing of this Act, a pros- 
pectus was issued, proposing to form the London and Westminster Bank. 
The shares, however, were taken up but tardily, and the bank did not 
commence business until March 10th, 1834, and then only with a paid-up 
capital of £ 50,000, and of this capital a large portion is said to have 
been subscribed by shareholders who resided in the country. 

As the Bank Charter Act did not prescribe the way in which companies 
of more than six persons were to sue or be sued, the directors of the London 
and Westminster Bank brought a bill into Parliament, in the session of 
1834, to authorize them to sue and be sued in the names of their public 
officers, in the same manner as those banking companies that were locat- 

259 



A Treatise on Banking. 

ed beyond sixty-five miles from London. This bill was carried by large 
majorities through the House of Commons, although opposed by the influ- 
ence of the Bank of England, and by Lord Althorp, then Chancellor of 
the Exchequer. The bill, however, was lost in the Lords. In conse- 
quence of this failure, the bank followed the plan of suing and being sued 
through the medium of trustees. 

Previous to the commencement of business, the directors applied to the 
Committee of Private Bankers for admission to the Clearing-house. This 
was refused. The directors also applied for permission to have a drawing 
account at the Bank of England. This, too, was refused. 

Notwithstanding these difficulties, the bank continued to advance, and, 
by the date of the First Annual Report, March 4th, 1835, the paid-up 
capital, increased by two calls of £ 5 each upon the shareholders, amount- 
to ^244,945. 

At the commencement of the year 1835, the Bank of England institut- 
ed legal proceedings to prevent the London and Westminster Bank ac- 
cepting bills drawn at less than six months after date. Supported, how- 
ever, by the legal opinions of Sir John Campbell, Sir William Follett, and 
Mr. Pemberton, the trustees continued to accept such bills, and resisted 
the proceedings of the Bank of England. 

By the end of December, 1835, the number of shares issued had in- 
creased to 17,818. Soon afterwards the directors made a fourth call of 
£ 5 per share, payable the following April. This made £ 20 paid upon 
each share, and the whole paid-up capital exceeded £ 400,000. The div- 
idend on the year ending December, 1835, was at the rate of 4 per 
cent. 

At the commencement of the year 1836, the bank extended its branch- 
es. In addition to the branch at Waterloo-place, Pall Mall, opened on the 
same day as the head office in Throgmorton Street, the bank opened, on 
the 4th of January, a branch at 213 High Holborn, and another at 87, 
Whitechapel ; and on the 29th of February, another was opened in Wel- 
lington Street, Southwark. In the following June a branch was opened at 
155 Oxford Street. In this year the bank obtained a large accession of 
country business, in consequence chiefly of the formation of a great num- 
ber of new joint-stock banks throughout the country. In this year, too, 
the directors issued 9,333 shares at a premium of £ 4t 10s. per share, by 
which the sum of £ 41,998 10s. was realized as premiums. The total 
paid-up capital on December 31st, 1836, amounted to .£597,225, on 
which a dividend was paid at the rate of 5 per cent. 

In the beginning of the year 1837, the suit brought by the Bank of 
England was terminated, by the Master of the Rolls granting an injunc- 
tion to restrain the London and Westminster Bank from accepting bills at 
less than six months after date. The country joint-stock banks then 
adopted the practice of drawing upon the London and Westminster Bank 
" without acceptance," in the same way as the Bank of Ireland draws 
upon the Bank of England. No practical difficulty was experienced, and 
the London and Westminster Bank lost none of its connections in conse- 
quence of this adverse decision. At the end of the year the directors de- 
clared the usual dividend of 5 per cent. 

260 



The London and Westminster Bank. 

On the 26th of December, 1838, the bank removed its business from 
No. 38 Throgmorton Street, to their new building in Lothbury. In the 
report delivered in March, 1839, the directors refer in the following terms 
to the then condition of the bank : — 

" The pleasure which the directors feel in making their Fifth Annual 
Report is augmented by the circumstance of its being delivered to the 
proprietors in their own building, an event that seems to justify a glance 
at the past history of the bank. 

" When the directors consider, that during the five years of the existence 
of this establishment, they have had to contend against the fears and prej- 
udices of the public mind, the uncertainties and the intricacies of the law, 
and the opposing influence of existing interests ; and that this conflict has 
been carried on in seasons of great commercial embarrassment, and under 
circumstances of peculiar difficulty ; and that, amid all these disadvan- 
tages, they have nevertheless acquired a paid-up capital of nearly six hun- 
dred thousand pounds, between eight and nine hundred respectable pro- 
prietors, a large and increasing business in London, and a country con- 
nection that embraces one hundred and fifty banks and branches, they do 
feel that the result of the first experiment of establishing a joint-stock bank 
in London has been highly satisfactory, and that the confidence they ex- 
pressed in their First Annual Report has been abundantly confirmed." 

The same report makes the following allusion to the other joint-stock 
banks established in London : — 

" It may be expected that some notice should be taker) in this report of 
the extension of the system of joint-stock banking in London. This will 
not, in the opinion of the directors, militate against our interests, as those 
principles, which we were the first to advocate, will be thus more widely 
disseminated. Hence all banking companies that may be respectably and 
honorably conducted will be regarded by this bank, not as rivals, but as 
allies. At the same time, the shareholders should bear in mind, that as 
joint-stock banks multiply in London, each bank will have to depend 
mainly upon the support of its own proprietary. And the London and 
Westminster Bank having been first in the field, ought not to sufTer itself 
to be passed in the course by later and more youthful competitors. But 
if the exertions of our shareholders be at all proportionate to their num- 
bers, their wealth, and their respectability, the London and Westminster 
Bank will not only have the honor of being the first joint-stock bank in 
London in the order of time, but in other respects also will be enabled to 
maintain the preeminence." 

In March, 1840, the dividend was raised to 6 per cent, upon the profits 
of the preceding year ; and this rate has since been constantly main- 
tained. In 1841 the directors issued ten thousand of the unappropriated 
shares at par to the existing shareholders, in the proportion of one new 
share to the holder of three shares. This raised the number of shares 
issued to 40,000, and the paid-up capital to £ 800,000. In February, 
1842, the bank opened a drawing account with the Bank of England. 

In the report delivered March, 1841, the directors observe, — " During 
the past year the banking institutions of the country have occupied a large 
portion of public attention. The directors trust that the events and dis- 

261 



A Treatise on Banking. 

cussions that have taken place will have the- effect of diffusing a correct 
knowledge of the principles of joint-stock banking, and that institutions 
like the London and Westminster Bank will be allowed to exercise the 
same legal rights and privileges which are accorded to other banking es- 
tablishments." In the same year, Mr. Gilbart, the general manager, was 
examined for four days before a Select Committee of the House of Com- 
mons, at the request of a meeting of deputies from the joint-stock banks. 
In the report of March, 1844, we read, — "As the speech from the 
throne has called the attention of Parliament to ' the state of the law with 
regard to the privileges of the Bank of England and to other banking es- 
tablishments,' the directors have cooperated with the representatives of 
other joint-stock banks in bringing under the consideration of the Govern- 
ment the defects of the laws relating to banking companies, which they 
feel sure the Legislature will not refuse to remedy." In this year the 
bank obtained the power to draw, accept, or indorse any bills of exchange 
not payable to bearer on demand ; and immediately commenced accept- 
ing the bills drawn by its country connections, and issuing circular letters 
of credit for the use of travellers and residents on the continent. In the 
same year the bank obtained the power of suing and being sued in the 
names of its public officers, and accordingly registered the names of its 
trustees for that purpose. 

In addition to the usual dividend of 6 per cent., the directors gave in 
March, 1847, a bonus of 2 per cent out of the profits of the preceding 
year. At the same time they announced the distribution of the remain- 
ing ten thousand unappropriated shares at par among the existing share- 
holders, in the proportion of one new share to every four shares pre- 
viously held. This raised the paid-up capital of the bank to one million 
sterling. 

On the 31st of December, 1847, Messrs. Young & Sons (formerly 
Messrs. Weston & Young), of South wark, retired from business, and the 
customers of the bank, according to the wishes of Mr. Young, transferred 
their accounts to the Southwark Branch of the London and Westminster 
Bank. 

At a general meeting held on the 1st of March, 1848, the report an- 
nounced that, with the exception of outstanding instalments amounting to 
£ 3,273, the paid-up capital of the bank was one million sterling. A divi- 
dend at the usual rate of 6 per cent, was declared, and £ 4,223 4s. lOd. 
was added to the surplus fund. 

The chairman stated that, in the week preceding the letter of the Gov- 
ernment suspending the act of 1844, the bank had sold Government secu- 
rities to a large amount, which could not afterwards be replaced but at an 
advanced price. The loss thus occasioned amounted to nearly £ 20,000. 
The following is the paragraph in the report referring to this sub- 
ject : — 

" From the severe pressure on the money market during the latter part 
of the year, it was deemed advisable to realize some portion of our Gov- 
ernment securities ; and although the profits of the year have, conse- 
quently, been curtailed, yet the directors feel assured that the liberality 
which they were thus enabled to exercise towards its customers will tend 

262 



The London and Westminster Bank. 

to the advantage of the bank. The whole of the stock that was sold has 
since been replaced." 

At this meeting the proprietors recommended to the directors that the 
general meetings should be held half-yearly, and that the first meeting 
should be held earlier in the year. The directors accordingly called a 
special meeting on the 19th of July, for the purpose of receiving a half- 
yearly report, and for making such alterations in the deed of settlement as 
would enable the proprietors to meet on the third Wednesday in January, 
instead of the first Wednesday in March. The result of this resolution is, 
that the annual general meeting of the bank will in future be held, under 
the deed, on the third Wednesday in January, and a half-yearly meeting 
may be called specially by the directors either on the third Wednesday in 
July, or on any other day, whenever it shall be deemed necessary or ex- 
pedient. 

From this half-yearly report it appeared, that, from losses in the pre- 
vious year, it had become necessary to take £ 5,161 3s. Id. from the sur- 
plus fund to make up the half-yearly dividend. But in the second half- 
year the profits exceeded the dividend by £ 7,237 Ss. 2d., making on the 
whole of the year 1848 an addition to the surplus fund of £ 2,076 0s. Id., 
after paying the dividend of 6 per cent, on the increased paid-up capital 
of £ 1,000,000. 

II. Its Principles. — At the time the London and Westminster Bank 
was announced, it was contended by the advocates of the previous system 
that the principles of joint-stock banking were wholly inapplicable to the 
wants and habits of the population of London. Had the founders of this 
bank possessed zeal without discretion, they would probably have disre- 
garded the peculiarities of the field of their operations, and have adopted 
entirely the system of banking so long acted upon in Scotland. They 
seem, however, to have combined the enlightened views of statesmen 
with the caution and practical knowledge of men of business. Hence, 
they followed or discarded the principles of Scotch banking according as 
they found them adapted, or otherwise, to the local circumstances of the 
London population. They seemed not so anxious to introduce a new sys- 
tem of banking, as to guard against the imperfections of the one previous- 
ly in existence. From the original prospectus and other documents issued 
by the company, we learn that the following principles were those ulti- 
mately adopted. 

1. That the bank should consist of aw unlimited number of partners. 
This is essential to its character as a joint-stock bank. It was ascertained 
that within the previous twenty years about twenty private banking houses 
had stopped payment in London ; that by most of these failures the public 
had sustained considerable losses, and that great difficulties and embar- 
rassments had been occasioned by the interruption to business and the 
want of confidence which these failures had occasioned. A bank com- 
posed of several hundred partners, all of whose property would be an- 
swerable for its obligations to the public, seemed the most effectual way 
of preventing the recurrence of these evils. To show the strength of the 
company and the extent of the confidence to which they are entitled, a 
list of the shareholders is published with the annual report of the directors. 
S 263 



A Treatise on Banking. 



Since the Act of 1844, these names have also been published at the 
commencement of each year in a Supplement to the Royal Gazette. 
The following is an analysis of those published in the year 1847 : — 
Spinsters, 140 ; married women, 16 ; widows, 66 ; clergymen, 34 ; medi- 
cal men, 13; naval and military officers, 45 ; solicitors, barristers, and 
writers to the signet, 9 ; men of title, 12 ; gentlemen and others, 731 : 
making a total of 1,066. These are resident as follows : — 



In London, and within fifteen miles 

thereof, 675 

In other parts of England, . . 320 
In Scotland, 42 



In Ireland, 

In other countries, 



Total, 



1,066 



2. A second principle adopted was, that the bank should have a large - 
paid-up capital. 

It was observed that the London bankers did not carry on business 
with their own capital, but merely upon their credit : they were supposed 
to be men of property, and, in some cases, this supposition constituted the 
whole of their working capital. Hence, in some instances, London bank- 
ers had stopped payment who were perfectly solvent ; but their property 
was not engaged in their business, and could not suddenly be realized to 
pay their debts. To obviate these inconveniences, to be prepared at all 
times for a withdrawal of its deposits, to be able to give adequate accom- 
modation to its customers, and to support public confidence in seasons of 
extreme pressure, a large paid-up capital was deemed requisite. No idea 
seems to have been entertained of remaining satisfied with a small capital 
in order to pay larger dividends. The directors do not appear to have 
regarded themselves as mere agents, employed to obtain the most rapid 
return for a sum of money ; but they acted as the founders of an estab- 
lishment destined to take a high rank among the national institutions of 
the country. The capital of the bank was fixed at £ 5,000,000 sterling, 
divided into 50,000 shares of £ 100 each. All these shares are in 
the hands of the partners, and the paid-up capital of the bank is thus 
£ 1,000,000, with a power in the directors of calling up an additional sum 
of £ 4,000,000 sterling. 

3. It was observed that the London private banks were adapted only 
for the rich. An indispensable condition of having an account was that a 
certain sum should be kept unproductive in the banker's hands. Thus the 
middle class of society, who had the means of employing the whole of 
their capital in their respective occupations, were altogether excluded from 
the advantages of banking. To remedy this defect, the London and 
Westminster Bank determined to open accounts with persons who had 
not the means of keeping large balances unemployed, but who were 
willing to pay the bank a small commission for conducting their ac- 
counts. The principle of commission is not practised in Scotland with 
regard to current accounts, as the banks look for payment chiefly by the 
issue of their notes. In this country the principle is adopted in the provin- 
ces, and even by the London bankers in regard to their country accounts. 
The application of this principle to London accounts was an improvement 
introduced by the London and Westminster Bank, and it brought the ad- 

264 



The London and Westminster Bank. 

vantages and conveniences of banking within the grasp of a large class of 
the community to whom they were previously denied. The expense of 
keeping a banking account was also reduced by the prohibition of pres- 
ents or Christmas boxes to the clerks. Although the system of Christmas 
boxes is sanctioned by the Bank of England as well as by the private 
bankers, it is, we consider, a practice more honored in the breach than in 
the observance. Whether these presents are regarded as taxes upon the 
customers, or as charitable donations to the clerks, they were deemed to 
be equally objectionable. 

4. A further attempt was made to popularize the system of banking in 
London, by allowing interest upon small sums of money lodged on de- 
posit receipts. All the witnesses examined before the Parliamentary 
Committees of 1826 had borne testimony as to the beneficial effects of 
this system in Scotland. And although the London and Westminster 
Bank, not being a bank of issue, could not regard these small deposits as 
an instrument of increasing its circulation of notes, yet it was thought that 
the system might be rendered a source of profit to the bank, and certainly 
an advantage to the community. The savings banks could receive no 
more than .£30 from a depositor in each year, and only £ 150 in the 
whole. Those parties who had further sums they wished to deposit in a 
place of security upon the principle of receiving interest on the sums thus 
lodged, were provided with such a place in the London and Westminster 
Bank. Sums from £ 10 to £ 1,000 are received on deposit, and interest 
allowed at a known rate, and they are at all times repayable upon demand 
without notice. 

The London and Westminster Bank have not adopted the system of 
cash credits as practised in Scotland. These credits are valued by the 
Scotch banks chiefly as an instrument for the issue of their notes ; and it 
may be questioned whether the system can be rendered a source of profit 
to a non-issuing bank without imposing heavy charges in the form of in- 
terest and commission upon the customers. 

5. While, however, the founders of the bank were thus regardful of the 
industrious classes of the community, they were not inattentive to the in- 
terests of the wealthy. Professional men, merchants, and gentlemen of 
fortune have often large sums of money in their hands for a short time, 
waiting favorable seasons of investment. For these sums the private 
bankers would allow no interest. The London and Westminster Bank 
determined to take temporary or permanent lodgments of sums of <£ 1,000 
and upwards, upon special agreement as to the rate of interest and time 
of repayment. The rate of interest is usually governed by the state of 
the money market, and the principal is repaid at a fixed time, or at a few 
days' notice, as may be agreed upon. Parties may lodge money upon an 
interest account who have no current account, and those who have cur- 
rent accounts may transfer any portion of their balance to an interest ac- 
count ; but the bank allows no interest on the balance of a current ac- 
count. It is considered that a large portion of the fluctuating balance of a 
current account must be kept in the till to meet the daily cheques drawn 
by the customers ; that the remainder must be invested in the most avail- 
able, and therefore the least productive securities ; and that considerable 

265 



A Treatise on Banking. 

expense is incurred by books, cheques, salaries, &c, in conducting these 
accounts ; and hence that the bank could not afford to grant any rate of 
interest which it would be worth while for the customers to receive. A 
person, therefore, may have two accounts, — a current account, and a de- 
posit account. Upon one he receives interest, upon the other the re- 
ceives none. The London and Westminster Bank think it better to keep 
these two accounts distinct, than to adopt any system of amalgamation. 

6. Another principle of the bank — not announced in the prospectus, 
but adverted to in some of the Annual Reports — is that of keeping a 
large portion of its funds at all times in a convertible state. In the Re- 
port of March, 1839, the directors state, " Although a low rate of in- 
terest prevailed during the last year, the directors did not allow the desire 
of making large profits to tempt them into advances upon inferior securi- 
ties, or to lock up their funds in inconvertible investments ; they feel as- 
sured, that any departure from sound principles in banking, even when 
attended with immediate profit, must always result in loss to the proprie- 
tors, and danger to the establishment." Again, in the Report delivered 
in March, 1844, we read, " Throughout the whole of last year money 
was exceedingly abundant, and, consequently, cheap. But although a low 
value of money affects most severely those banks that have the largest 
paid-up capital, and which have been so managed as to retain the full com- 
mand of their funds, yet the directors did not suffer the desire of obtaining 
a higher rate of interest to betray them into advances upon doubtful or in- 
convertible securities." In conformity with this principle, we find, from 
the account of assets and liabilities attached to the Annual Reports of the 
directors, that the amount invested in Government securities is consider- 
ably more than the whole capital of the bank. The propriety of such a 
course must have been abundantly evident during the existence of the 
bank, for it would be impossible to find so many " pressures " on the 
market, or so much fluctuation in the value of money, within any similar 
period in the history of banking. It may be presumed that the directors 
spoke from their own experience, when they stated in their Report of 
March, 1840, "The years 1837 and 1838 were remarkable for the 
abundance and cheapness of money, and the year 1839 for scarcity and 
pressure. Neither of these extremes is favorable to large banking profits : 
a state in which money is easy without being abundant, and valuable 
without being scarce, is most conducive to the welfare of both the banking 
and the commercial interests of the country." 

7. The last principle we shall mention as adopted by the London and 
Westminster Bank is the system of branches. 

This system, to the extent to which it is now carried, doos not seem to 
have been contemplated by the original founders of the bank. The first 
prospectus announced merely that a bank would be established in the 
City, with a branch at the West-end of the town. But a power to estab- 
lish other branches was inserted in the deed of settlement, and it was soon 
observed, that, from the increasing extent and business of London, there 
were districts which were inadequately supplied with banking accommo- 
dation. In these districts the inhabitants were compelled either to forego 
all banking facilities, or to submit to the inconvenience of keeping their 

266 



The London and Westminster Bank, 

account with a bank at a distance from their habitation. It was to meet 
the public wants, more, perhaps, than with any sanguine expectation of 
reaping any large amount of immediate profit, that the directors extended 
their branches. Peradventure, too, it was feared that unless the London 
and Westminster Bank occupied these districts, the inhabitants might he 
induced to form among themselves small joint-stock banks with inade- 
quate capital, and thus have impaired the respectability of the system. 
In one instance this in fact actually occurred. The mode of conducting 
business is the same at the branches as at the City-office. A customer's 
cheque can be paid only at the branch on which it is drawn, but he may 
have money placed to his credit with that branch at any of the other es- 
tablishments. Those country notes that are made payable at the London 
and Westminster Bank, are, as matter of courtesy, paid at any of the 
branches. Each branch makes both daily and weekly returns of its 
transactions, which are laid before the directors ; and the affairs of all the 
branches are subjected to the personal inspection of the general manager : 
at. the same time all the arrangements tend to localize the branches, so as 
to give them as much as possible the character of independent banks. 
The managers are selected for their experience in banking, and they give 
immediate replies to the inquiries of both their customers and the public. 
They are ready to afford every facility to the parochial and other authori- 
ties, in conducting the financial arrangements of the districts. They al- 
low the same rate of interest on deposits which is allowed at the City- 
office : and in making advances or discounts, they are not restricted to the 
amount which their own funds can supply. Thus each district has, in a 
branch bank, all the advantages that could be derived from an independent 
local bank, combined with the additional security and accommodation to 
be obtained from a more extended and wealthy establishment. 

Most of the branches have, since their establishment, transferred their 
business to other premises. 

The Westminster Branch was opened on the 10th of March, 1834, at 
No. 9, Waterloo-place, Pall Mall, and was removed to its present premises, 
No. 1, St. James's-square, on the 30th of December, 1844. 

The Bloomsbury Branch was opened on the 4th of January, 1836, at 
No. 213, High Holborn ; and the adjoining house, No. 214, was added 
for transacting business with the public on the 1st of October, 1838. 

The Southwark Branch was opened on the 29th of February, 1836, at 
No. 12, Wellington-street, in the Borough, and was removed to No. 3, in 
the same street, on the 26th of December, 1839. 

The St. Marylebone Branch was opened on the 15th of June, 1836, at 
No. 155, Oxford-street, and was removed to No. 4, Stratford-place, Ox- 
ford-street, on the 23d of April, 1844. 

Though the system of branches appears to be an extension of the orig- 
inal views of the Directors, yet the principles on which the business is 
conducted have undergone no change. It is a proof of the consideration 
and practical knowledge brought to bear upon the subject, in the first in- 
stance, that no alteration or improvement has since been found necessary. 
The success of the company has been attributed more to the general ap- 
probation with which these views have been received than to any extended 

267 



A Treatise on Banking. 

system of private solicitation. This, if correct, must be the more gratify- 
ing to the directors, as the prosperity of the bank is thus a public homage 
to the soundness of its principles. 

III. Its Government. — The government of the bank is in a board of 
directors, consisting of not fewer than twelve members. Three go out 
annually by rotation, but are eligible for reelection. The present number 
is fifteen, but it can be increased at any time by a vote of the general 
meeting of proprietors. There is no governor, or deputy-governor, or 
permanent chairman. Five of the directors are trustees, and are also 
registered as the public officers of the company, in whose names, or any 
one of them, the bank may sue and be sued. The payment of the direc- 
tors is fixed by' the shareholders at their general meetings. This sum 
was voted annually until the year 1839. Up to that year inclusive the 
annual profits are stated in the reports before the payment to the directors 
is deducted. In subsequent years these payments are deducted first, and 
the profits are announced " after defraying the whole expense of manage- 
ment, including payment to directors." 

By the resolutions of the general meetings appended to the Annual Re- 
ports, it appears that the first payment to the directors was a sum of 
£2,500, voted at the general meeting in March, 1836, for the services 
rendered in the two preceding years. In subsequent years, the payment 
was £ 2,500 annually, until March, 1847, when the sum of £4,500 was 
voted for the year 1846, and the same amount was to be continued in 
each future year.* 

A Table, showing the amount of Paid-up Capital, Annual Profits, Dividends, and Surplus 
Fund, of the London and Westminster Bank, on the 3lst of December in each Year, 
from the Opening of the Bank. 



Date. • 


Paid-up Capital. 


Profits of the Year t 


Dividends". 


Surplus Fund. 




£ 


£ s. 


d. 


£ 


s. 


d. 


£ s. d. 


1834 


182,255 


3,540 6 


6 


2,334 


18 


1 


1,205 8 5 


1835 


267,270 


11,520 10 





10,818 


12 





1,907 6 5 


1836 


597,255 


32,483 14 


1 


29,864 








4,527 6 


1837 


597,280 


32,404 10 


8 


29,864 








7,067 11 2 


1838 


597,280 


43,635 12 


11 


29,864 








20,839 4 1 


1839 


597,280 


48,098 3 





35,836 


16 





33,100 11 1 


1840 


597,280 


48,951 8 


10 


35,836 


16 





46,215 3 11 


1841 


786,300 


51,300 


9 


41,507 


8 





56,007 16 8 


1842 


800,000 


55,118 14 


2J 


48,000 








63,126 10 10 


1843 


800,000 


51,696 5 


7 


48,000 








66,822 16 5 


1844 


800,000 


51,081 18 


11 


48,000 








69,904 15 4 


1845 


800,000 


66,344 1 





48,000 








88,248 16 4 


1846 


800,000 


72,175 15 


9 


48,000 





°o\ 


98,424 12 1 


(Bonus) 








16,000 







1847 


988,882 


58,223 *4 


10 


54,000 








100.647 16 11 


1848 


998,768 
998,768 


62,076 
688,650 7 






60,000 








102,723 16 11 


Totals, 


585,926 


10 


1 


102,723 16 11 



* The above article was prefixed to a volume of the Reports and other public docu- 
ments printed (not published) in 1847, under the title of " A Record of the Proceedings 
of the First Thirteen Years of the London and Westminster Bank, with Portraits of 
its Principal Officers." 

t These are the net profits after making all deductions, including the payment to directors, the in- 
come-tax, and £ 1.000 towards the preliminary expenses. 
I This amount includes a sum of £ 1,306 arising from premiums on shares sold. 

268 



The London and Westminster Bank. 

Mr. James William Gilbart has been the General Manager of the Bank 
from its commencement. He was previously the manager of the Water- 
ford Branch of the Provincial Bank of Ireland. 



The Prospectus of the Bank, January 1, 1849 : — 

LONDON AND' WESTMINSTER BANK. 

Established 10th March, 1 834, — under the Act of Parliament, 3^-4 Will. IV. c. 98,— 
and Registered under, the Act 7 $* 8 Vict. c. 113. 

Directors. — Henry Bosanquet, Esq.; Henry Buckle, Esq.; Frederick Burmester, 
Esq. ; John Garratt Cattley, Esq. ; Thomas Chapman, Esq., F. R. S. ; James Denis 
de Vitre, Esq. ; Joseph Esdaile, Esq. ; Thomas Farncombe, Esq., Aid. ; Charles 
Gibbes, Esq.; William Haigh, Esq.; George Hanson, Esq.; Henry Harvey, Esq, 
E. R. S. ; David Salomons, Esq., Aid. ; John Stewart, Esq. ; Joshua Walker, Esq. 

Trustees and Registered Public Officers. — Henry Bosanquet, Esq.; Fred- 
erick Burmester, Esq. ; Joseph Esdaile, Esq. ; Charles Gibbes, Esq. ; Henry Harvey. 
Esq. 

General Manager. — James William Gilbart, Esq., F.R. S. 

City Office. — Lothbury ; W. T. Henderson, Manager. 

Westminster Branch. — 1, St. James's-square ; Oliver Vile, Manager. 
Bloomsbury Branch- — 214, High Holborn ; William Ewings, Manager. 
Southward Branch. — 3, Wellington-street, Borough ; Edward Kingsford, Manager. 
Eastern Branch. — 87, High-street, Whitechapel ; W. D. Asperne, Manager. 
St. Marylebone Branch. — 4, Stratford-place, Oxford-street; George M. Mitchell, Man- 
ager. 

The capital of the bank is £ 5,000,000 sterling, in 50.000 shares of £ 100 each. The 
sum of £20 has been paid on each share, so that the paid-up capital is £ 1,000,000 ster- 
ling. This presents the most perfect security to the public, and gives the bank the 
most ample means for affording to its customers every reasonable accommodation. 

The bank has above eleven hundred partners, whose names are registered'at the 
Stamp Office, and are printed with the Annual Report of the Directors. The advan- 
tage obtained by a joint-stock proprietary is, that those partners who are customers to 
the bank participate in the profits made by their own accounts. 

Current accounts are received on the same principles as those observed by the Lon- 
don bankers. Every person connected with the establishment signs a declaration of 
secrecy as to the accounts of individuals. No Christmas boxes or other gratuities are 
allowed to be taken by the officers of the bank. 

Parties who are desirous of having current accounts, without being under the neces- 
sity of keeping a balance, are charged a small commission, proportionate to the amount 
of their transactions. This extends the advantage of a banking account to parties 
having moderate incomes, or who in the course of their business find ample employ- 
ment for their capital. 

Sums from £ 10 to £ 1,000 are received on deposit, at a rate of interest to be fixed 
at the time, and they are repayable upon demand, without notice. For these sums re- 
ceipts are granted, called deposit receipts. By allowing interest for small sums, the 
benefit of the deposit system, as practised in Scotland, is extended to all classes of the 
community. 

Sums of £ 1,000 and upwards are also received on deposit receipts, upon such terms 
as may be agreed upon, with regard to the rate of interest and the time of repayment. 
Trustees, and others who have money which they cannot immediately employ, may 
thus obtain an interest for it until an opportunity occurs for its permanent investment. 
Parties may lodge money upon an interest account who have no current account, and 
those who have current accounts may transfer any portion of their balance to an in- 
terest account. 

Circular notes and letters of credit are issued for the use of travellers and residents 
on the Continent and the United States. These notes are payable at everv important 

269 



A Treatise on Banking. 

place in Europe or in the United States, and thus enable a traveller to vary his route 
without inconvenience. No expense whatever is incurred, and when cashed no charge 
is made for commission. These notes may be obtained at the City-Office in Lothbury, 
or at any of the branches. 

The bank takes the agency of joint-stock banks, private bankers, and other parties 
residing at a distance. By the Act 7 & 8 Victoria, c. 32, this bank obtained the right 
of accepting bills drawn at a less period than six months after date, and by the Act 
7 & 8 Victoria, c. 1 13, it acquired the privilege of suing and being sued in the name 
of any one of its registered public officers. 



II. — The London Joint- Stock Bank. 

The Joint-Stock Bank was formed in the year 1836. That year was 
one of great excitement in favor of the principle of joint-stock banking 
both in London and in the country. The shares of the new bank were 
readily taken by a very respectable proprietary, most of whom were resi- 
dent in London. The bank had also from its commencement the ad- 
vantage of an influential commercial directory. A new feature in London 
banking was announced. The bank agreed to allow interest at 2 per 
cent, on the minimum balance of a current account. At the end of each 
month interest was allowed on the lowest balance that had appeared to the 
party's credit at the close of any day during the month. Previous to the 
commence*ment of business, the bank engaged as manager Mr. George 
Pollard, who had for many years been the chief clerk in the private bank 
of Messrs. Williams, Deacon, & Co. 

The capital of the bank was fixed at .£3,000,000, divided into 60,000 
shares of £ 50 each. 

The bank was opened on the 21st of November, 1836, at temporary 
offices in Coleman-street. The shares subscribed for, and upon which 
the deposit of £ 2 per share had been paid, then exceeded £ 30,000. 
Soon afterwards the bank removed to their present premises in Prince's- 
street. 

The first annual meeting of the proprietors was held on the 13th of De- 
cember, 1837, at the bank premises in Princes-street. The number of 
shares on which the £ 2 deposit and the first call of £ 5 per share had 
been paid was then 31,080, making a paid-up capital of .£217,560. 
Upon this capital a dividend was declared at the rate of 4 per cent, and 
£ 2,932 0s. 9d. carried to the credit of " the Guarantee Fund." 

In the year 1838 the directors made a call of £ 3 a share, payable the 
21st of May, 1838, which increased the paid-up capital to £ 10 a share. 
And in this year the dividend was raised to 5 per cent. 

At the meeting in June, 1839, the directors stated that the deed of set- 
tlement required all the effects of the bank to be taken strictly at the mar- 
ket value of the day on which the accounts are made up. The half year's 
profits were consequently lower, from the exchequer bills held by the 
bank being valued at their then low price in the market. 

It was resolved at this meeting that the time of balancing the books of 
the company be in future the 30th day of June and the 31st day of De- 
cember in each year, instead of the 20th day of May and the 20th day of 
November ; and that the half-yearly meetings of the company be in fu- 
ture held in the months of January and July. 

270 



The London Joint- Stock Bank. 

At the general meeting held on the 11th of January, 1840, the direc- 
tors announced their intention to issue 12,432 of the reserved shares, in 
the proportion of two to every five held by each shareholder. The shares 
were issued at £ 1 premium, and these premiums were added to the 
guarantee fund. At the meeting on the 11th of July, 1840, the report 
stated that out of these 12,432 shares, 12,254 had been claimed, and the 
remaining 178 had been sold on account of the bank at a premium of £ 3 
each. The report further stated, that " the manager, Mr. Pollard, having 
claimed for his nominees the 1,000 shares at par to which they were 
entitled by his agreement when originally engaged, the same have been 
issued to them, which increases the number of paid-up shares entitled to 
participate in the present dividend to 32,080." 

In the latter end of the year 1840, Messrs. Wright & Co., a very old 
banking-house, having many connections among the Roman Catholics, 
stopped payment. The London Joint-Stock Bank determined to open a 
branch at the West-end of London, and appointed two of Mr. Wright's 
partners to be their managers. 

The directors made the following announcement of this event to the 
shareholders at the meeting held the 13th of January, 1841 : — 

" Circumstances having occurred which appeared to present a favora- 
ble opportunity to establish another joint-stock bank in the western part 
of the metropolis, the directors resolved to open a branch of this bank in 
the premises recently occupied by Messrs. Wright & Co., No. 6, Henri- 
etta-street, Covent-garden. 

" Business was commenced at the branch in question, which is called 
1 The Western Branch of the London Joint-Stock Bank,' on Saturday the 
5th ultimo, and the directors have every reason to expect that it will ma- 
terially contribute to the prosperity of this establishment." 

At the same meeting the directors announced their intention to issue 
the remainder of their shares : — 

" On reference to the statement of assets and liabilities, the proprietors 
will perceive that the number of shares has been increased, by the issue 
of reserved shares during the past year, to 44,512 ; and the directors are 
of opinion that the time has now arrived when it is expedient to complete 
the number originally contemplated, by the issue of the remainder, which 
they have accordingly resolved to do. 

" As the directors have learned, with much satisfaction, that the princi- 
ple adopted on the former occasion was very generally approved of, they 
have decided, in the present instance, to follow the same plan, as nearly 
as possible, by issuing at a premium of £ 1 each, one for every three 
shares held by the present proprietors, and by dividing the payment for 
the shares into four instalments of £2 10s. each, payable on the 15th of 
April, 31st of May, 29th of July, and 15th of September next. The pre- 
mium to be received on the said shares will again be carried to the credit 
of the guarantee fund. 

" There will then remain to complete the number of 60,000 shares the 
small excess of 651, which will be disposed of by the directors to the best 
advantage for the benefit of the bank." 

At the meeting in July the directors stated that, having been unable to 

271 



A Treatise on Banking. 

agree with the assignees of Messrs. Wright & Co. upon terms for the 
purchase of the premises in Henrietta-street, and the opportunity offering 
of obtaining the premises that had recently been occupied by Messrs. 
Hammersley & Co. (who had also failed) in Pall Mall, the directors de- 
termined upon removing the business of their Western Branch to the lat- 
ter house. The house in Henrietta-street was taken by the Commercial 
Bank of London, who then opened a Western Branch. 

At the general meeting held on the 12th of January, 1842, the direc- 
tors announced, that the instalments on the last issue of shares having 
been received, the paid-Up capital was £ 589,700, and as they considered 
it desirable to complete the issue of the whole 60,000 shares, they in- 
tended to dispose of the remaining 1,030 to the public. These snares 
were afterwards sold at a premium of .£3,025 12s. 6d., which amount 
was added to the guarantee fund. 

At this meeting the dividend was raised to 6 per cent., at which rate it 
has since remained. 

At the July meeting in 1843, the directors announced that, in conse- 
quence of the abundance of money and the low rate of interest, the profits 
were only £ 12,183 17s. 5cZ., and they had recourse to the guarantee fund 
for a sum equal to pay the usual half-yearly dividend, at the rate of 6 per 
cent, per annum, — =£5,817 2s. Id. 

In January, 1844, the directors took £ 1,529 3s. 4d. from the guaran- 
tee fund, to make up the amount of the usual dividend. 

At the meeting held in July, 1844, the directors announced a change 
in their allowance of interest on current accounts. They had come to a 
resolution in February last, " that on and after the 1st of March, the in- 
terest allowed by the bank to customers on their minimum balance be one 
per cent., except on accounts the monthly minimum balance of which 
on the average of the half-year shall be under two hundred pounds." 
£ 1,959 12s. lOd. was taken from the reserved fund to make up the half- 
yearly dividend. 

In January, 1847, the directors announced the following plan for the 
future regulation of the guarantee fund : — 

" In meeting the shareholders at the usual period, the directors have 
satisfaction in laying before them accounts which show that during the 
last six months the bank has realized a net profit of .£31,580 17s. 

" The question how this profit ought to be appropriated has necessarily 
brought under the serious consideration of the directors the present state 
of the guarantee fund, and the amount to which it should attain in order 
to carry out fairly the design for which it was instituted. And the result 
of their deliberations has been a resolution that it will not be expedient 
that it should at present exceed £ 120,000 except by the accumulation of 
its own interest, and such sums as may be too small to apply to a bonus. 
But that at the end of each year, in addition to the dividend of 6 per cent, 
the surplus profit should be divided among the shareholders, provided 
such surplus amount to 2s. per share in the capital of the company, other- 
wise that it should be added to the guarantee fund. 

" In accordance with this decision, the board will have on this occasion 
the pleasure of paying to the shareholders a bonus of 2s. per share, in ad- 

272 



The London Joint- Stock Bank. 

dition to the usual dividend, and the guarantee fund will then amount to 
.£120,117 145.3d." 

In January, 1848, the directors declared a bonus of 7s. 6d. a share, in 
addition to the usual dividend of 6 per cent. ; after sustaining a loss of 
£ 6,000 by the defalcation of one of their clerks on the establishment of 
the Western Branch. 

In January, 1849, the directors declared a bonus of 7s. a share, in ad- 
dition to the usual dividend of 6 per cent. 

A Statement of the Paid-up Capital, Profits, Dividend, and Surplus Fund, of the London 
Joint-Stock Bank, on the 31st December in each Year. 



Date. 


Paid-up Capital. 


Profits of the Year. 


Amount of Dividend. 


Surplus 


Fund. 




£ 


£ s. 


d. 


£ 


s. 


d. 


£ 


s. 


d. 


1837 


217,560 


11,634 8 


9 


8,702 


8 





2,932 





9 


1838 


310,800 


21,243 12 


6 


13,209 








10.966 


13 


4 


1839 


310,800 


27,068 6 


10 


17,285 


11 


3 


20,749 


8 


10 


1840 


445,120 


47,922 3 


10* 


19,148 








49,523 


12 


8 


1841 


589,700 


61,027 5 


4t 


28,819 








81,731 


IS 





1842 


600,000 


48,671 19 


n 


36,000 








94.403 


17 


2 


1843 


600,000 


31,420 16 


6 


36,000 








89.824 


13 


8 


1844 


600,000 


37,041 14 


4 


36.000 








90.856 


S 





1845 


600,000 


41,440 14 


6 


36,000 








96,297 


2 


6 


1846 
(Bonus) 


600,000 


65,820 11 


9 


36,000 
6,000 






:i 


120,117 


14 


3 


1847 


600,000 


62,131 7 


4 


36,000 





:i 








(Bonus) 








22,500 





123,759 


1 


7 


1848 
(Bonus) 


600,000 


62,005 18 


1M 


36,000 
21,000 






:j 


128,765 





6 


Totals, 


600,000 


517,428 19 


9 


388,663 


19 


3 


128,765 





6 



*This sum includes £ 12,778 8s. 9d. received from premiums on shares sold. 

t " £ 14,466 0s. Od. ditto ditto. 

: " £ 3,025 12s. 6d. ditto ditto. 

§ These annual amounts of profits include the sums applied as interest of the surplus fund. 

Prospectus for 1849 : — 

THE LONDON JOINT-STOCK BANK. 
Head Office. — Princes-street, Mansion House. 

Western Branch. — 69, Pall Mall. 
Capital, £ 3,000,000 in 60,000 Shares of £ 50 each. 
The business of the bank is conducted on the following principles : — 

Accounts of parties, properly introduced, are received agreeably to the present cus- 
tom of London bankers, with this advantage, that interest is allowed on current ac- 
counts kept at the Head Office. 

Interest at the rate of £ 1 per cent, per annum will be allowed on the smallest bal- 
ance which may appear to the credit of each account, kept at the Head Office, at the 
close of any day during the preceding month : provided the monthly minimum balance, 
on the average of the half-year, shall not be under £ 200. 

Sums of money received on deposit, at such rate of interest, and for such periods, as 
may be agreed upon, reference being had to the state of the money market ; and, if 
required, bills or promissory notes, at not less than six months' date, will be deliv- 
ered to depositors, in lieu of receipts, for sums of not less than £100. 

The agency of joint-stock, and other country and foreign banks, undertaken on such 
terms as may be agreed upon. 

Investments in, and sales of, all descriptions of British and foreign securities, bul- 

273 



A Treatise on Banking. 

lion, specie, &c, effected, dividends received, and every other description of bank- 
ing business and money agency transacted. 

The board of directors meets weekly, when a full statement of the affairs of the 
bank is laid before them. 

Circular Letters of Credit granted on the Continent, and on the chief commercial 
towns of the world. 

January 18th, 1849. 



III. — The Union Bank of London. 

The Union Bank of London was formed chiefly by gentlemen who 
were, by birth or otherwise, connected with Scotland. The capital was 
fixed at £ 3,000,000 in 60,000 shares of £ 50 each. 

The bank adopted the principle of allowing 2 per cent, interest on the 
minimum balance of a current account : — " Parties keeping current or 
drawing accounts will be credited on the first day of every month, on the 
smallest balance at the credit of their account at the close of business on 
any day during the past month, provided that such balance shall not be 
less than £ 100. The total amount of interest will be passed to account 
every six months." 

The bank was opened on the 4th of February, 1839, at No. 8, Moor- 
gate-street ; and a branch was opened on the 25th of March following, 
at temporary offices in Argyle-street, Regent-street, until a bank-house 
should be erected on the freehold ground which the directors had pur- 
chased for that purpose. 

Previous to the opening of the bank the directors engaged, as general 
manager, Mr. William Wilson Scrimgeour, one of the principal officers 
in the discount department of the Bank of England. 

The first meeting of shareholders was held on the 8th of July, 1840. 
The report stated that on the 30th June the paid-up capital was £ 210,025, 
being £ 5 per share paid on 42,005 shares, held by 738 proprietors. A 
dividend was declared at the rate of 5 per cent. ; and, after liquidating 
a portion of the preliminary expenses, £ 2,000 was set apart as the 
foundation of a surplus or guarantee fund. 

In the Second Annual Report, made to the general meeting of pro- 
prietors the 12th of July, 1841, the directors stated they had made an 
additional call of £ 5 per share, which had been most promptly re- 
sponded to by the proprietors ; and the paid-up capital then amounted to 
,£422,700. 

The report also stated that, a favorable opportunity having offered itself 
for opening a branch at Charing-cross, the directors availed themselves of 
it, by purchasing the premises No. 4, Pall Mall East, lately occupied by 
the Metropolitan Bank, which had withdrawn from business. Mr. Wight, 
the manager of the Metropolitan Bank, was appointed the manager of 
the branch. 

At the general meeting held in July, 1844, the directors stated that, 
" the premises now occupied by the bank having become inadequate for 
the convenient transaction of its extended business, the directors had 
availed themselves of the opportunity of purchasing from the Grea* 
Western Railway Company, their extensive freehold premises in PrinceL- 

274 



The Union Bank of London. 

street, which will secure a permanent position for the bank in the most 
convenient situation in the city." , 

The directors state in their report of July 1847 : — 

" The directors consider they are justified in increasing the rate of 
dividend, and they have therefore declared a dividend for the last six 
months of 3| per cent., which, with 2J per cent, paid in January, will 
make the dividend 6 per cent, clear of income-tax, for the whole year." 

The report also states : — 

" The directors have considered the subject of the appropriation of the 
reserved shares, and have resolved that they shall be offered in the first 
instance to the shareholders only, in ratable proportion to the shares 
held by them, and on such terms as shall be equivalent to a liberal bonus. 
And the proprietors may rely on the directors giving ample notice of, and 
selecting such period for, this appropriation as shall be most desirable for 
the interests of the bank, and advantageous to the proprietors individ- 
ually." 

In the report of July, 1848, the directors again refer to this subject : — 

" With respect to these shares, which were alluded to in the last an- 
nual report, it is almost superfluous to refer to the unprecedented mer- 
cantile crisis which has marked the eventful period since the last general 
meeting, as having rendered it inexpedient to appropriate them at a time 
when it might be inconvenient to many proprietors to avail themselves 
even of so advantageous an investment." 

Table of the Paid-up Capital, Annual Profits, Dividends, and Amount of Surplus Fund, 
of the Union Bank of London, during each Year ending the 30th of June. 



Date. 


Paid-up Capital. 


Profits of the Year. 


Amount of Dividend. 


Surplus Fund. 




£. 


£. s. 


d. 


£. 


s. 


d. 


£. s. 


d. 


1840 


210,025 


12,501 5 





10,501 


5 





2.000 





1841 


422,700 


17,851 5 





15,851 


5 





4.000 





1842 


422,900 


23,145 





21,145 








6,000 





1843 


422,900 


23,145 





21,145 








8.000 





1844 


422,900 


24,613 16 


1 


21,145 








11,468 16 


I 


1845 


422,900 


28,630 12 


2 


21,145 








18,954 8 


3 


1846 


422,900 


23,145 





21,145 








20,954 8 


3 


1847 


422J900 


42,070 5 


5 


25,374 








37,650 13 


S 


1848 


422,900 


34,474 





25,374 








46,750 13 


8 


Dtals, 


422,900 


229,576 3 


8 


182,825 


10 





46,750 13 


S 



Present Prospectus : — 

UNION BANK OF LONDON. 

Capital £ 3,000,000, in Shares of £50 each. 

Directors. — Sir Peter Laurie, Alderman, Governor: William Mountford Nurse, 
Esq., Deputy Governor ; George Webster, Esq. ; John Barnes, Esq. ; J. W. Sutherland, 
Esq.; James Farquhar, Esq. ; Peter Laurie, Esq.: John Conncll, Esq. ; Charles Lyall. 
Esq. ; John Chapman, Esq. ; Henry Hulbert, Esq. ; Archibald Boyd, Esq. ; Lieut. 
Col. Matheson, M. P. ; John Scott, Esq. 

Principal Office. — 2, Princes-street, Mansion-house. 
William Wilson Scrimgeour, General Manager. 
Regent-street Branch Office. — Argyll-place ; Henry T. Clack, Manager- 
Charing Cross Branch Office. — 4, Pall-mall, East; Alexander Wight, Manager. 
Secretary. — Walter Laurie. 
275 



A Treatise on Banking. 

The capital of the bank is £ 3,000,000 sterling, in 60,000 shares of £ 50 each ; 42,290 
of these shares (on each of which £10 has been paid, making the paid-up capital 
£ 422,900) are held by nearly 600 proprietors, whose names are published periodically. 



Current Accounts. — Parties keeping current or drawing accounts will be credited on 
the first day of every month with a month's interest, at the rate of 2 per cent, per 
annum, on the smallest balance at the credit of their account at the close of business 
on any day during the past month, provided that such balance shall not be less than 
£ 100. The total amount of interest will be passed to account every six months. 

Deposit Accounts. — The rate of interest at present allowed on money placed on de- 
posit at ten days' notice, is £ 2 per cent., but which will rise or fall, pro rata, with the 
Bank of England rate of discount for first-class bills, being always one per cent, under 
that rate. The maximum not to exceed 5 per cent. Receipts for the sums so de- 
posited will be granted to the parties ; or, for the convenience of depositors going 
abroad, bills or promissory notes, at not less than six months' date, including interest 
till maturity, will be issued. 

GENERAL BUSINESS. 

The agency of country and foreign banks, whether joint-stock or private. 

Circular notes and letters of credit issued for all parts of the continent of Europe 
and elsewhere. 

Purchases and sales effected in all the British and foreign stocks and securities, and 
the dividends received without charge. 

The half-pay, &c, of officers, being customers, also received without charge. 

W. W. Scrimgeotjr, General Manager 



IV. — The Commercial Bank of London. 

This bank commenced at No. 3 Moorgate Street, Lothbury. Its shares 
were £ 1,000 each. The first manager was Mr. Sparkes, who had been 
a private banker at Exeter. The present manager, Mr. Alfred R. Cutbill, 
was sub-manager of the London and County Bank. 

A Statement of the Paid-up Capital, Profits, Dividend, and Surplus Fund, of the Com- 
mercial Bank op London, on the 31st of December in each Year. 

Date. Paid-up Capital. Profits of the Year. Amount of Dividend. Surplus Fund. 

£ £ s. d. £ s. d. £ s. d. 

1841, . . . 80.000 3;619 19 5 2,684 14 3 935 5 2 

1842, . . 80,000 4,584 4 3 4,000 1,519 9 5 

1843, . . . 80,000 3,249 3,200 1,568 9 5 

1844, . . 80,000 4,945 12 2 4,000 2,514 1 7 

1845, . . . 100,000 6,981 16 8 4,987 6 9 4,508 11 6 

1846, . . 122,860 12,600 16 8 7,042 8 6 10,066 19 8 

1847, . . . 128,280 12,382 13 2 7,624 7 2 14,825 5 8 

1848, . . 128,280 10,257 19 4 7,696 16 17,386 9 



Totals, . . 128,280 58,622 1 8 41,235 12 8 17,386 9 

The first annual meeting was held on the 30th of June, 1841, when 
the paid-up capital amounted to £ 80,000, on which a dividend was paid 
at the rate of 4 per cent, per annum. The bank had opened a Western 
Branch in Henrietta Street, Covent Garden, in the premises formerly oc- 
cupied by the private bank of Messrs. Wright & Co., who had become 
bankrupts. 

276 



The London and County Bank. 

At the annual meeting in 1842 the dividend was raised to 5 per cent. 

In the year 1843 the dividend declared was 4 per cent., and in 1844 it 
was 5 per cent. 

At a special meeting, held on the 3d of June, 1844, it was resolved to 
reduce the shares from £ 1,000 to £ 100 each. 

In July, 1845, the directors met their proprietors for the first time in 
their new house, in Lothbury. The rate of interest was advanced to six 
per cent. 

Present Prospectus : — 

COMMERCIAL BANK OF LONDON, 

LOTHBURY, AND 6, HENRIETTA STREET, COVENT GARDEN. 

Capital, £2,000,000, in 20,000 Shares, of £100 each. 

Directors. — John Taylor, Esq., Chairman. Thomas Barnewall, Esq., Deputy 
Chairman. Charles Dickson Archibald, Esq. : "William Beresford, Esq., M. P. ; William 
Sprott Boyd, Esq. ; John Alfred Chowne, Esq. ; William Cooper, Esq. ; James Alex- 
ander Douglas, Esq. ; Charles Hill, Esq- ; Jonathan Hopkinson, Esq. ; Edward Ox- 
enford, Esq.; John Savage, Esq. ; Joseph Thompson, Esq. ; Joseph Underwood, Esq. ; 
Richard Walker, Esq., M. P. ; Thomas Winkworth, Esq. 

Manager. — Mr. Alfred R. Cutbill. 

Solicitors. — Messrs. Amory, Nelson, Travers, & Wynn, and Messrs. Norris & Sons. 

Accounts of parties received and kept on the plan generally adopted by London 
bankers. 

Parties having current accounts with this bank have the advantage of transferring 
any surplus balance to a deposit account bearing interest ; and sums of money are re- 
ceived on deposit from parties not keeping current accounts, at such rate of interest, 
and for such periods, as may be agreed upon. 

The agency for country and foreign banks undertaken on such terms as may be 
agreed upon. 

Purchases and sales of British and foreign securities, &c, effected, dividends re- 
ceived, and every description of banking business transacted. 



V. — The London and County Bank. 

This bank was originally called the Surrey, Kent, and Sussex Bank, 
and it was intended that its head office should be fixed in Southwark. It 
afterwards assumed the above title, and took the premises formerly occu- 
pied by the private bank of Messrs. Lees, Brassey, & Co., at No. 71 
Lombard Street. From thence it removed to No. 21 Lombard Street, 
the premises formerly occupied by the private bank of Messrs. Esdaile & 
Co. It has forty-five branches, all in the country. 

The following Private Banks have been absorbed in the London and 
County Bank : — 

1. Aylesbury, J. & T. Chapman. 5. Petersfield, Hector & Co. 

2. Chatham, Jeffreys & Hill. 6. Sandwich, Emmerson & Co. 

3. Cranbrook, Wilmhurst & Co. 7. Petworth, John Stoveld. 

4. Oxford, Davenport & Co. 

277 



A Treatise on Banking. 



The branches at Abingdon, Arundel, Cambridge, Canterbury, Chiches- 
ter, Romford, St. Alban's, and Stoney Stratford, were established in con- 
sequence of the failure of private banks in those places. 

Present Prospectus : — 

THE LONDON AND COUNTY JOINT-STOCK BANKING COMPANY. 

Subscribed Capital £500,000, in Shares of £50 each; £20 paid. 

Parent Establishment, 21 Lombard Street. 

Directors. — John Sadleir, Esq., M. P., Chairman. John Griffith Frith, Esq., 
Deputy Chairman. William Cory, Esq. ; James William Deacon, Esq. ; J. A. Durham, 
Esq. ; Swynfen Jervis, Esq. ; John Cuthbert Joyner, Esq. ; J. H. Lance, Esq. ; Richard 
Springett, Esq. ; Clement Tabor, Esq. ; John Wheelton, Esq.; James Rhodes, Esq., 
Inspecting Director. 

Trustees. — Wm. Cory, Esq. ; James William Deacon, Esq. ; Swynfen Jervis, Esq. 

General Manager. — Henry Luard, Esq. 

Standing Counsel. — Sir John Jervis, M. P., Attorney General ; Russell Gurney, 

Esq., Q. C. 

Secretary. — R. P. Nichols, Esq. 

Solicitors. — Messrs. Wilkinson & Gurney. 



Abingdon and Wantage, 
Arundel and Worthing, 
Ashford, 

Aylesbury and Thane, 
Banbury, 

Bishop's Stortford and Saf- 
fron Walden, 
Braintree, 
Brighton, 
Buckingham, 
Cambridge, 
Canterbury, 
Chatham, 
Chelmsford, 
Chichester, 
Coggeshall, 
Cranbrook, 



Branch Banks of the Company, 
Croydon, 
Dorking, 
Dover, 
Gravesend 
Greenwich, 
Halstead, 

Hastings and Battle, 
Hertford, 
Horsham, 
Huntingdon, St. Ive's, and 

St. Neot's, 
Leighton Buzzard, 
Lewes, Hailsham, and New 

haven, 
Luton, Dunstable, and 

Hitchin, 
Maidstone, 



Maldon, 

Oxford and Witney, 

Petersfield, 

Petworth and Mid hurst, 

Romford and Chipping 

Ongar, 
Rye, 

Sandwich, 
Seven Oaks, 
St. Alban's, 
Stoney Stratford, 
Tenterden, 
Tunbridge, 
Tunbridge Wells, 
Woolwich, 
Wrotham. 



" I look upon the principle of joint-stock companies as one of the great discoveries 
of modern times. I regard them, when made responsible to public opinion, as the 
ground on which all successful enterprise must be founded. I say further, that if there 
be any one description of business to which the principle of a joint-stock company can 
be more applicable than another, it is, under due restrictions, the business of banking." * 

The history of joint-stock banks is short, — they sprang from necessity. The panic 
of 1825 provoked an inquiry into the banking system, and the result was the en- 
actment of the 7th Geo. IV., the statute to which they owe their origin in this 
country. 

Their success has been extraordinary. Established in Scotland, Ireland, and Eng- 
land, their shares command high premiums, in many cases exceeding 100 per cent, on 
the paid-up capital. Their stability and prosperity in Scotland, from the date of their 
original foundation up to the present hour, are notorious : it is beyond a question, that 
no principle of banking which has yet been subjected to the test of experience has af- 
forded an equal extent of credit with equal security. 

They have been tendered by the Legislature as a safe medium of commercial trans- 

* Extract from the Speech of the Chancellor of the Exchequer, 1835 

278 



The London and County Bank. 

actions ; they have been accepted by the leading capitalists ; and they have received 
the stamp of approbation and implicit confidence from the great mass of the population 
of the three kingdoms. 

The primary advantage of joint-stock banks is their undoubted stability. They 
offer to individuals the opportunity of becoming their own bankers. As shareholders, 
they participate in the profits of their own accounts. If they require accommodation, 
a part of the consideration they pay for it returns to them ; if they deposit, the amount 
is doubly fruitful : first, they receive from the bank, interest on the sum deposited ; and 
secondly, they share in the profit which the bank itself makes by the use of their in- 
vestment. In a word, private individuals, instead of giving the profit of their accounts 
to private bankers, by becoming shareholders in joint-stock banks divide it amongst 
themselves. 

As a short summary, it may be said, that joint-stock banks owe the public approba 
tion bestowed on them, and the public confidence they enjoy, to the number and 
wealth of their proprietors, to the publicity of their transactions, to their actually sub- 
scribed capital, to the security which they offer for the fulfilment of their engagements. 
to the almost unlimited credit of a large and rich proprietary, to the power thence de- 
rived to afford to the public the greatest accommodation consistent with prudence, to 
the individual influence of each member of the company, whose exertions secure to it 
considerable business at the outset, and to their perfect freedom from a dread of the 
sudden and ruinous checks to which private banks, however solvent and honorable the 
partners, are liable in those panics which seem to occur periodically in great trading 
communities. These advantages are found to be obtainable from banking companies 
founded on the joint-stock principle, and from them alone. 

The London and County Bank was established with the avowed object of introduc- 
ing these advantages amongst the inhabitants of the surrounding districts of London, 
within sixty-five miles ; and whatever the difficulties of prejudice and opposition which 
the directors had to encounter in the first instance, such has been the growing favor of 
the joint-stock system of banking, engendered by the inquiring spirit of the age, and 
confirmed by the disastrous results consequent upon the failure of private banks, that 
the London and County Banking Company can now triumphantly point to upwards 
of forty branches which have, one after the other, been raised into existence, and 
which, nurtured by the wants of their various localities, are steadily and progressively 
increasing in profit and importance. 

The London and County Bank is protected from one of the most active causes of 
loss to a bank, — panic ; by not being a bank of issue, it does not coin a circulation 
of its own ; it confines its payments to that which has ever merited public confidence, 
the coin of the realm, and the notes of the most powerful joint-stock bank in the world, 
— the Bank of England. 

The company at the parent bank and its branches open accounts with commercial 
houses and private individuals, either upon the plan usually adopted by the London 
bankers, or by charging a small commission to those persons to whom it may be more 
convenient to use the whole of their capital. 

They allow interest at the rate of 1 per cent, per annum on the amount of the 
monthly minimum balance exceeding £100, which is passed to the customer's credit 
at the expiration of the quarter. 

They receive deposits at such rate of interest and for such periods as may be agreed 
upon, reference being had to the state of the money market. 

They obtain letters of credit for all the principal cities and towns of foreign 
countries. 

They receive dividends ; army, navy, and civil pay, and pensions ; proceeds of ec- 
clesiastical property, and rents ; effect transfers and sales of stock and shares ; and 
transact financial business generally. 

The following are the leading features in the deed of settlement on which the com- 
pany has been constituted : — 

1. The shares of the London and County Bank are £50 each, and they are dis- 
persed amongst upwards of 400 proprietors, mostly residing in the immediate localities 
of its branches. 

2. As regards the liability of the shareholder, the deed of settlement contains a 
clause, which, while it leaves unimpaired that great principle of the law on which the 
stability of joint-stock banks is founded, and which secures to them "unlimited'' 
public confidence, namely, the " unlimited " liability of each shareholder for the obli- 

T 279 



A Treatise on Banking. 

gations of the company, at the same time efficiently protects him, by providing, that if 
ever the losses of the company shall amount to one third of the paid-up capital, a 
meeting shall be called to consider the propriety of dissolving it ; and that if, in opposi- 
tion to the views of any shareholder, it be detetermined, notwithstanding the loss, to 
continue the company in existence, he may call on those shareholders who so resolve 
to purchase his shares, and thus release him from all future responsibility. 

3. A proportion of the profits is reserved to form a permanent guarantee fund ; and 
after a sufficient accumulation, the entire future profits will be divided among the 
shareholders. 

4. A balance-sheet, clearly showing the state of the financial affairs of the company, 
will be open to the inspection of the shareholders seven days previous to each annual 
meeting. 

5. Shareholders are entitled to one vote for five shares ; to two votes for twenty 
shares ; to three votes for fifty shares ; and to five votes for one hundred shares and 
upwards. 

By order of the Directors, 

E. P. Nichols, 
21, Lombard Street. Secretary. 



The total number of places at which business is carried on in London 
by joint-stock banks is fourteen, of which seven are to the east, and seven 
to the west of Temple-bar. 

No. I. — Analysis of the Returns made to the Commissioners of Stamps and Taxes by the 
Joint- Stock Banks of London, in January, 1849. 

;™ tjo„t^ Commercial London and 



Westminster Joint-Stock U n ?' T °"^ K Bank 
Bank. • Bank. of London. of Londoru 


County 
Bank. 


Total. 


Parties resident in London and 












within 15 miles, 


761 624 373 


110 




99 


1,967 


Do. in other parts of England, 


361 177 109 


53 




263 


963 


Do. in Scotland, 


44 17 80 


5 




— 


146 


Do. in Ireland, 


14 1 1 


1 




1 


18 


Do. abroad, .... 


19 9 7 


10 




— 


45 


•*> 


199 828 570 


179 




363 


3,139 


No. II. — Abstract of the . 


Affairs of the Joint-Stock Banks, from their last Reports. 


Name of Bank. s SrSd. 


Capital Amount of 


Reserved Amount 


Paid-up 


Dividend 


Paid-up. Deposits. 


Fund, of Shares, 


, perShr. 


per Cent. 


London and Westmin- £ 


£ £ 


£ 


£ 


£ 


£ 


sterBank, . . 5,000,000 


1,000,000 3,089,659 


102,723 


100 


20 


6 


London Joint-Stock 












Bank, . . . 3,000,000 


600,000 2,328,056 


128,765 


50 


10 


6&3|Bo. 


Union Bank of London, 3,000,000 


422,900 2,644,723 


46,750* 


50 


10 


6 


Commercial Bank of 












London, . . . 64l',400 


128,280 406,217 


17,386 


100 


20 


6 


London and County 












Bank, . . . 500,000 


199,800 1,354,730 


27,550 


50 


20 


6 


£ 12,141,400 


' 2,350,980 9,823,390 


323,174 









* This ia the amount transferred from the Profit and Loss Account, without the accumulations. 
With these, it amounts to £ 50,000, which is invested in Bank Stock. 

Two joint-stock banks have been discontinued in London. 1. " The 
Metropolitan Bank," which was formed in 1839, and wound up in 1841. 
The manager, the premises, and the customers were transferred to the 
Union Bank of London, who then opened a branch at Charing-cross. 2. 

280 



The Clearing-House. 

" The St. Marylebonc Bank," opened in 1836, was wound up in 1841. 
The business of the bank was transferred to the St. Marylebone Branch 
of the London and Westminster Bank. 

The Clearing-House. 

The joint-stock banks are not admitted into the Clearing-house. This 
exclusion puts them to some inconvenience, and to considerable expense. 
There are certain classes who cannot conveniently keep their account 
with a bank that does not clear. The banks have to keep a larger 
amount of money in their tills, and thus there is a loss of interest. They 
have to employ more clerks, to present their bills and cheques at the 
houses of the clearing bankers, and thus there is a greater expenditure in 
salaries. In lending money on the Stock Exchange they have to stipu- 
late for payment in bank notes, and not by a clearing cheque. In selling 
stock they have to make the same agreement. In these cases they have 
sometimes to submit to less favorable terms, as it is not always conve- 
nient, and never agreeable, to the stock-brokers to supply bank notes 
in the middle of the day. Other inconveniences are also occasionally 
experienced. 

The exclusion of the joint-stock banks inflicts also some inconvenience 
and loss on the clearing bankers. The joint-stock banks present all their 
bills and cheques at the counters of the respective clearing bankers three 
times a day, and receive payment in bank notes. On the other hand, 
each clearing banker presents his bills and notes at the same hours on the 
several joint-stock banks, at their respective counters, and receives pay- 
ment in bank notes. To meet the claims made upon them daily by the 
private banks, the joint-stock banks have to keep in their tills a larger 
amount of bank notes than they would keep were they members of the 
Clearing-house. And, on the other hand, each clearing banker has also 
to keep a larger amount of bank notes to meet the claims made upon him 
at his counter by the joint-stock banks. The customer of the private 
banker must also make provision the day before they fall due for any 
bills he may have made payable at his banker's. For should those bills 
be in the hands of the joint-stock bank who will present them early in the 
morning, and if provision is not previously made, the bills will be dishon- 
ored. Stock-brokers, too, have sometimes sustained annoyance from this 
cause. They have sold stock for parties who keep their account with a 
joint-stock bank, and when their cheque has been presented for payment 
by the joint-stock bank, it has not been paid. The answer given has 
been that it must come through the clearing ; and as the joint-stock bank 
could not pass it through the clearing, it has been returned dishonored to 
the broker's customer. These inconveniences and annoyances to all par- 
ites will necessarily multiply as the business of the joint-stock banks shall 
increase. 

The Clearing-house was established about seventy-five years ago, by 
some of the London bankers, for the purpose of facilitating their exchan- 
ges with each other. It was at first by no means generally approved, and 
some of the principal bankers refused to have recourse to it. After 
the number of clearing bankers had increased, a committee was formed 

281 



A Treatise on Banking. 

for its government. This committee is composed of five or six of the 
leading bankers, and any new bank that desires to have the privilege of 
clearing, must now apply for permission to the committee. 

The object the clearing bankers had in view was to. exchange bills and 
cheques against bills and cheques, and thus be enabled to carry on their 
business with a less amount of capital. But while the bankers endeav- 
oured to promote their own interest, they promoted at the same time the 
interest of the public. The sums liberated from employment in this way 
became available for employment in agriculture, manufactures, and com- 
merce. Whenever any banker, therefore, is excluded from the Clearing- 
house, and is consequently obliged to keep a larger amount of cash in his 
coffers, his available capital is so far reduced, and thus the agriculture, 
manufactures, and commerce of the country receive less encouragement. 

The establishment of the Clearing-house has led to new arrangements 
in several branches of business. The stock-brokers, for instance, now 
settle all their receipts and payments by cheques, to be paid through the 
Clearing-house. The cheques a broker draws on his banker are paid at 
the Clearing-house by cheques of other brokers, which he lodges to his 
credit. The colonial brokers also, and other clases of commercial men, 
have fixed days for settling their accounts, and on these days draw 
cheques on their bankers in the morning, and pay in cheques to meet 
them at a subsequent part of the day. Thus the institution of the Clear- 
ing-house has become entwined with the commerce of the country, and 
could not be discontinued without deranging every branch of business. 
It has also received the sanction of the law of the land, the courts of law 
having decided that the presentment of a bill of exchange at the Clear- 
ing-house is a legal presentment. In this case, as in many others, the 
custom of bankers and merchants has become law. Many of our com- 
mercial laws have had the same origin. They have at first been mere 
regulations established by merchants for their own convenience ; these 
regulations have been adopted by other classes of the community ; they 
have been followed for a number of years ; and then the law has recog- 
nized them as a portion of the commercial institutions of the country. 
Such was the origin of allowing three days' grace upon bills of exchange, 
and such has been the case with the Clearing-house. The Clearing- 
house is no longer, therefore, a private subscription-room, from which the 
parties admitted may exclude whomsoever they please at their own ca- 
price. They may exclude improper banking companies, as the Edinburgh 
banks refuse to exchange with any bank that is not respectable ; but they 
are bound in justice to admit all respectable banks who may apply for 
admission. 

" Another amendment which I would propose as connected with the 
currency of London, would be a regulation of the Clearing-house by the 
Legislature. Although the Clearing-house was a voluntary association 
of bankers at first, yet it has now existed for 60 years, and has become 
interwoven with several branches of London trade ; it is therefore for all 
practical purposes a public institution, and, like a market or any other 
public institution, might become the subject of legislative interference. 
The exclusion of banks in London from the Clearing-house whose capi 

282 



The Clearing-House. 

tal now amounts to about two millions sterling, and who have about 2,000 
partners, is not only a great inconvenience and a great loss to those 
banks, but is a great inconvenience also to the public in general, and such 
an interference with the freedom of trade, as carried on by individual 
companies in London, as alone would justify the interference of the Leg- 
islature ; and, besides, it is quite unreasonable that an association of om 
nibus proprietors should be indicted and tried for a conspiracy because 
they have tried to run a rival omnibus off the road, and yet that a body 
of bankers may conspire for a similar object without any interference of 
the Legislature at all." (Evidence of J. W. Gilbart before the Commit- 
tee on Banks of Issue, March, 1841.) 

The following evidence was given by the Governor of the Bank of 
England, before the Committee on Commercial Distress, in answer to 
questions from Sir William Clay : — 

" It must be known to you, I suppose, that the joint-stock hanks of London are ea 
eluded from the Clearing-house ? — Yes. 

" Are you of opinion that that exclusion (which of course it is perfectly within the 
right and discretion of private banks to insist upon, if they please) tends to public in- 
convenience, inasmuch as it lessens, pro lanto, that economy of the circulating medium 
which the Clearing-house is calculated to produce 1 — Allowing joint-stock banks to 
clear with other bankers, I have no doubt would produce an economy in the use of 
bank notes. 

" And economy in the circulating medium ? — And economy in the circulating me- 
dium. 

" Have you any means of ascertaining the amount to which the admission to the 
Clearing-house of joint-stock banks would economize the amount of circulation now 
required for the use of London ? — I have not ; I have heard it stated at half a mil- 
lion, but I cannot say if that is correct. 

"I believe that the chairman of one large London joint-stock bank, namely, the 
London and "Westminster, did state publicly that they were under the necessity of 
keeping a reserve of £ 150,000 in bank notes, more than it would have been necessary 
for them to keep if they had been admitted to the Clearing-house 1 — I know that he 
made some statement of that sort ; I cannot say what it was. 

" That must imply, not perhaps the necessity of a corresponding amount being kept 
by all private banks, but something approaching to it, inasmuch as all cheques on 
such banks held by joint-stock banks must be presented in the course of the morning 
at the banks, instead of being brought to the Clearing-house in the evening ? — Yes. 

" It is, therefore, not merely the amount of notes which the joint-stock banks are 
obliged to keep in reserve, but the amount of extra bank notes which the private bank- 
ers are obliged to keep in reserve 1 — Yes. 

" There are, besides the London and Westminster, four other joint-stock banks in 
London; I believe their capital, from the published reports, amount to £2,645,000 
paid-up capital, and their deposits to £ 8,864,000, together £ 11,509,000, of which these 
joint-stock banks have the control ? — I cannot say whether those figures are correct 
or not. 

" But assuming that those figures are correct, and that it is also correct that one of 
these banks, namely, the London and Westminster, is compelled to keep £ 150,000 
more of notes in reserve, because they are not admittted to the Clearing-house, is it 
not probable that the sum you have mentioned of £ 500,000 is not too large an esti- 
mate of the increased quantity of circulating medium, which is rendered necessary by 
the circumstance of these joint-stock banks not being admitted to the Clearing-house.? 
— Assuming as a fact, that the London and Westminster Bank keep £150,000 of 
notes more than they would otherwise keep in consequence of not being able to clear, 
probably, I should say, that that statement is correct. 

" But at all events, without assuming that these figures are exactly correct, is it not 
true, that that exclusion must, in reality, produce the necessity for a larger amount of 
circulating medium to supply the daily necessities of the public 3 — Yes." 

283 



A Treatise on Banking. 



Section IV. — THE COUNTRY PRIVATE BANKS. 

These banks cannot have more than six partners. They are banks of 
deposit, of loan, and of discount. As banks of deposit, they usually al- 
low interest on both deposits and balances of current accounts, and 
charge a commission on the amount of the transactions. In commercial 
or manufacturing districts their advances are usually made by way of dis- 
count ; in agricultural districts, frequently by loans. They remit money 
by issuing bills or letters of credit on London, or they direct their agents 
to make payments to bankers or other parties resident in London. As 
banks of circulation, they have at various times occupied a large portion 
of public attention, and have been the subject of much legislation. 

Those bankers who wish to issue notes must take out a license, which 
will cost £ 30 and must be renewed every year. They may re -issue 
any notes not above the value of £ 100 as often as they think proper. 
And should any of the firm die or remove from the business, the notes 
may be issued by the remaining partners. But they cannot be re-issued 
by a new firm, which does not include any member belonging to the firm 
by whom the notes were first issued. 

If the half of a note be lost or stolen, a banker cannot be compelled to 
give a new note in exchange for the remaining half. But if it can be 
proved that one half of a note is burnt, or otherwise destroyed, then the 
holder may perhaps recover the note from the banker. 

In such cases, the bankers always pay the value of the note on receiv- 
ing a respectable indemnity. 

Bankers may be compelled to pay whole notes that have been lost or 
stolen, provided the holder has given actual value for them. 

The stamp duty on country notes is as follows : — 

£ s. £ s. s. d. 

Notes not exceeding 11 ... ... ... 05 each. 

Exceeding 1 1 and not exceeding 2 2 10 

Ditto "22 " " 55 18 

Ditto " 5 5 " K 10 1 9 

Ditto " 10 " " 20 2 

Ditto " 20 " H 30 3 

Ditto " 30 " " 50 5 

Ditto " 50 « " 100 8 6 

Country banks are allowed to compound for the stamp duties on their 
notes, at the rate of seven shillings per cent, per annum upon the amount 
in circulation, and to include, on the same terms, their bills drawn on 
London at twenty-one days after date. But whether a country banker 
compounds for the stamp duties or not, he must make a return to the 
Government of the amount of his notes in circulation every Saturday 
night. These returns are consolidated, and the result published in the 
London Gazette. 

The following are the enactments respecting country bankers in the 
Act 7 & 8 Vict. c. 32, passed in 1844 : — 

284 



Country Private Banks. 

No New Bank of Issue. 

" X. And be it enacted, That from and after the passing of this Act, no person other 
than a banker, who, on the sixth day of May, one thousand eight hundred and forty-four, 
was lawfully issuing his own bank notes, shall make or issue bank notes in any part of the 
United Kingdom." 

Restriction against Issue of Bank Notes. 

" XI. And be it enacted, That from and after the passing of this Act, it shall not be 
lawful for any banker to draw, accept, make, or issue, in England or Wales, any bill 
of exchange, or promissory note, or engagement for the payment of money payable 
to bearer on demand, or to borrow, owe, or take up, in England or Wales, any sums 
or sum of money on the bills or notes of such banker payable to bearer on demand, 
save and except that it shall be lawful for any banker Avho was on the sixth day of 
May, one thousand eight hundred and forty-four, carrying on the business of a banker 
in England or Wales, and was then lawfully issuing, in England or Wales, his own 
bank notes, under the authority of a license to that effect, to continue to issue such 
notes, to the extent and under the conditions hereinafter mentioned, but not further or 
otherwise ; and the right of any company or partnership to continue to issue such 
notes shall not be in any manner prejudiced or affected by any change which mav 
hereafter take place in the personal composition of such company or partnership, 
either by the transfer of any shares or share therein, or by the admission of any new 
partner or member thereto, or by the retirement of any present partner or member 
therefrom : Provided always, that it shall not be lawful for any company or partnership 
now consisting of only six or less than six persons to issue bank notes at any time after the 
number of partners therein shall exceed six in the whole" 

Bankers ceasing to issue Notes may not resume. 

" XII. And be it enacted, That if any banker in any part of the United Kingdom 
who, after the passing of this Act, shall be entitled to issue bank notes, shall become 
bankrupt, or shall cease to carry on the business of a banker, or shall discontinue the 
issue of bank notes, either by agreement with the Governor and Company of the Bank 
of England or otherwise, it shall not be lawful for such banker at any time thereafter tc 
issue any such notes." 

Existing Banks of Issue to continue under certain Limitations. 

"XIII. And be it enacted, That every banker claiming under this Act to continue 
to issue bank notes in England or Wales shall, within one month next after the pass- 
ing of this Act, give notice in writing to the Commissioners of Stamps and Taxes, 
at their head office in London, of such claim, and of the place, and name, and firm, at 
and under which such banker has issued such notes during the twelve weeks next preced- 
ing the twenty-seventh day of April last ; and thereupon the said commissioners shall as- 
certain if such banker was on the sixth day of May, one thousand eight hundred and 
forty-four, carrying on the business of a banker, and lawfully issuing his own bank 
notes in England or Wales, and if it shall so appear, then the said commissioners shall 
proceed to ascertain the average amount of the bank notes of such banker which were 
in circulation during the said period of twelve weeks preceding the twenty-seventh 
day of April last, according to the returns made by such banker in pursuance of the 
Act passed in the fourth and fifth years of the reign of her present Majesty, entitled 
' An Act to make further Provision relative to the Returns to be made by Banks of 
the Amount of their Notes in circulation ' : and the said commissioners, or any two 
of them, shall certify under their hands to such banker the said average amount, when 
so ascertained as aforesaid ; and it shall be lawful for every such banker to continue 
to issue his own bank notes after the passing of this Act : Provided nevertheless, that 
such banker shall not at any time after the tenth day of October, one thousand eight hundred 
and forty-four, have in circulation upon the average of a period of four weeks, to be ascer 
tained as hereinafter mentioned, a greater amount of notes than the amount so certified. 

Provision for United Banks. 

" XIV. Provided always, and be it enacted, That if it shall be made to appear to 
the Commissioners of Stamps and Taxes that any two^or more banks have, by written 

285 



A Treatise on Banking. 

contract or agreement (which contract or agreement shall be produced to the said com- 
missioners), become united within the twelve weeks next preceding such twenty- 
seventh day of April as aforesaid, it shall be lawful for the said commissioners to as- 
certain the average amount of the notes of each such bank in the manner hereinbefore 
directed, and to certify the average amount of the notes of the two or more banks so 
united as the amount which the united bank shall thereafter be authorized to issue, 
subject to the regulations of this Act. 

Duplicate Certificate to be published in the Gazette. Gazette to be Evidence. 

" XV. And be it enacted, That the Commissioners of Stamps and Taxes shall, at 
the time of certifying to any banker such particulars as they are hereinbefore required 
to certify, also publish a duplicate of their certificate thereof in the next succeeding 
London Gazette in which the same may be conveniently inserted ; and the gazette in 
which such publication shall be made shall be exclusive evidence in all courts what- 
soever of the amount of bank notes which the banker named in such certificate or 
duplicate is by law authorized to issue and to have in circulation as aforesaid. 

In case Banks become united, Commissioners to certify the Amount of Bank Notes which each 
Bank was authorized to issue. 

" XVI. And be it enacted, That m case it shall be made to appear to the Commis- 
sioners of Stamps and Taxes, at any time hereafter, that any two or more banks, each 
such bank consisting of not more than six persons, have, by written contract or agreement 
(which contract or agreement shall be produced to the said commissioners), become 
united subsequently to the passing of this Act, it shall be lawful to the said commis- 
sioners, upon the application of such united bank, to certify, in manner hereinbefore 
mentioned, the aggregate of the amounts of bank notes which such separate banks 
were previously authorized to issue, and so from time to time ; and every such cer- 
tificate shall be" published in manner hereinbefore directed; and from and after such 
publication the amount therein stated shall be and be deemed to be the limit of the 
amount of bank notes which such united bank may have in circulation : Provided al- 
ways, that it shall not be lawful for any such united bank to issue bank notes at any time after 
the number of partners therein shall exceed six in the whole. 

Penalty on Banks issuing in Excess. 

" XVII. And be it enacted, That if the monthly average circulation of bank notes 
of any banker, taken in the manner hereinafter directed, shall at any time exceed the 
amount which such banker is authorized to issue and to have in circulation under the 
provisions of this Act, such banker shall in every such case forfeit a sum equal to the 
amount by which the average monthly circulation, taken as aforesaid, shall have ex- 
ceeded the amount which such banker was authorized to issue and to have in circula- 
tion as aforesaid. 

Issuing Banks to render Accounts. 

" XVIII. And be it enacted, That every banker in England and Wales who, after 
the tenth day of October, one thousand eight hundred and forty-four, shall issue bank 
notes, shall on some one day in every week after the nineteenth day of October, one 
thousand eight hundred and forty-four (such day to be fixed by the Commissioners of 
Stamps and Taxes) transmit to the said commissioners an account of the amount of 
the bank notes of such banker in circulation on every day during the week ending on 
the next preceding Saturday, and also an account of the average amount of the bank 
notes of such banker in circulation during the same week; and on completing the 
first period of four weeks, and so on completing each successive period of four weeks, 
every such banker shall annex to such account the average amount of bank notes of 
such banker in circulation during the said four weeks, and also the amount of bank 
notes which such banker is authorized to issue under the provisions of this Act ; and 
every such account shall be verified by the signature of such banker or his chief 
cashier, or, in the case of a company or partnership, by the signature of a managing 
director, or partner, or chief cashier of such company or partnership, and shall be 
made in the form to this Act annexed marked (B.) ; and so much of the said return 
as states the weekly average amount of the notes of such bank shall be published by 

286 



Country Private Banks. 

the said commissioners in the next succeeding London Gazette in which the same may 
be conveniently inserted ; and if any such banker shall neglect or refuse to render any 
such account in the form and at the time required by this Act, or shall at any time 
render a false account, such banker shall forfeit the sum of one hundred pounds for 
every such offence. 

Mode of ascertaining the Average Amount of Bank Notes of each Banker in circulation 
during the first Four Weeks after \Qth October, 1844. 

" XIX. And be it enacted, That for the purpose of ascertaining the monthly aver- 
age amount of bank notes of each banker in circulation, the aggregate of the amount 
of bank notes of each such banker in circulation on every day of business during the 
first complete period of four weeks next after the tenth day of October, one thousand 
eight hundred and forty-four, such period ending on a Saturday, shall be divided by 
the number of days of business in such four weeks, and the average so ascertained 
shall be deemed to be the average of bank notes of each such banker in circulation 
during such period of four weeks, and so in each successive period of four weeks, and 
such average is not to exceed the amount certified by the Commissioners of Stamps 
and Taxes as aforesaid." 

Bankers to take out a separate License for every Blace at which they issue Notes or Bills. 
Proviso in Favor of Bankers who had Four such Licenses in force on the 6th of May, 
1844. 

"XXII. And be it enacted, That every banker who shall be liable by law to take 
out a license from the Commissioners of Stamps and Taxes to authorize the issuing 
of notes or bills shall take out a separate and distinct license for every town or place at 
which he shall, by himself or his agent, issue any notes or bills requiring such license 
to authorize the issuing thereof, any thing in any former Act contained to the contrary 
thereof notwithstanding : Provided always, that no banker who on or before the sixth 
day May, one thousand eight hundred and forty-four, had taken out four such licenses, 
which on the said last-mentioned day were respectively in force, for the issuing of any 
such notes or bills at more than four separate towns or places, shall at any time here- 
after be required to take out or to have in force at one and the same time more than 
four such licenses to authorize the issuing of such notes or bills at all or any of the 
same towns or places specified in such licenses in force on the said sixth day of May, 
one thousand eight hundred and forty-four, and at which towns or places respectively 
such bankers had on or before the said last-mentioned day issued such notes or bills 
in pursuance of such licenses or any of them respectively." 

It will be seen from these extracts that the provisions of the Act re- 
quire : — 

1. That no new bank of issue be established in the United Kingdom. 

2. That the maximum of each bank of issue in England shall be the 
average of the notes in circulation during the four weeks ending the 27th 
of April, 1844. 

3. That if any bank having not more than six partners should exceed 
that number, it would lose its issue. This tends to prevent private banks 
merging into joint-stock banks. 

4. That no union can take place between a joint-stock bank and a pri- 
vate bank, or between two joint-stock banks of issue, without one of them 
at least losing its circulation. 

5. Every new branch at which notes shall be issued must take out a 
separate license. Hitherto no bank had been obliged to take out more 
than four licenses, however numerous its branches. This tends to check 
the opening of new branches of issue. 

It has been stated that the object of this Act was to pave the way for 
the establishment of one bank of issue. These provisions are certainly 

287 



A Treatise on Banking. 

not ill adapted for such an end. They will reduce the amount of the 
country circulation. They will produce other ill effects. The formation 
of large banks will be retarded. In some places it would be for the pub- 
lic advantage that a private bank should become a joint-stock bank. In 
other districts, it might be desirable that two small joint-stock banks of 
issue should unite and form a large one. The restrictions imposed by this 
Act will tend to prevent such unions. Perhaps in other respects its effects 
may be beneficial. It may lead a larger number of persons to keep cur- 
rent accounts with bankers, and to make their payments with cheques. 
A smaller amount of notes will then be necessary for the purposes of the 
country. The advantages of having a banker will be extended to the 
middle and lower classes, and will not as much as heretofore be confined 
to the wealthy. The Act, too, may have the effect of exempting the 
banks of issue from those accusations to which they have always been 
subjected on the occurrence of any national calamity. The whole Act of 

1844 is formed upon the notion that the country bankers can extend their 
issues as much as they please, — "a vulgar error," that has over and over 
again been abundantly refuted. Yet, had the Act not been passed, and 
had the country circulation increased a million or two, as possibly it might, 
from the increased transactions of the country, the railway speculations of 

1845 and 1846 would doubtless have been ascribed to the excessive issues 
of the country banks. The following language, which I addressed in 
1844 to the joint-stock banks, may not be considered inapplicable to all 
banks of issue : — 

" Another advantage is, that the joint-stock banks of issue will be de- 
livered from those unjust accusations to which they have hitherto been ex- 
posed. Almost every evil that has befallen the country for the last ten 
years has been ascribed by different writers to the reckless issues of the 
joint-stock banks ; and though the charge has been oft refuted, yet such 
has been the talent, zeal, and perseverance with which it has been re- 
vived, that it has doubtless in some degree prejudiced the public mind. 
But now this charge can be made no more. Our assailants are compelled 
to observe at least a ten years' truce. During this period we shall have 
no bank directors publishing pamphlets to show that their efforts to regu- 
late the exchanges have been counteracted by the imprudent issues of the 
joint-stock banks. Our notes will not again be classed by the authors of 
4 prize essays ' among the causes of national distress, and philosophical 
writers will no longer declaim, in eloquent metaphor, against i the wild 
democracy of rival issuers.' It is no small matter to be put into a position 
wherein we shall be sheltered from the peltings of unjust accusations." 
(Letters of Nehemiah, p. 11.) 

Some banks had ceased to issue their notes before the passing of the 
Act, by virtue of agreements with the Bank of England. The twenty- 
third section of the Act contains a special provision with reference to these 
banks. 

Compensation to certain Bankers named in the Schedule. 

" XXIII. And whereas the several bankers named in the schedule hereto annexed 
marked (C.) have ceased to issue their own bank notes under certain agreements with 
the governor and company of the Bank of England ; and it is expedient that such 

288 



Country Private Banks. 

agreements should cease and determine on the thirty-first day of December next, and 
that such bankers should receive by way of compensation such composition as hereafter 
mentioned ; and a list of such bankers, and a statement of the maximum sums in re- 
spect of which each such banker is to receive compensation, hath been delivered to the 
Commissioners of Stamps and Taxes, signed by the chief cashier of the Bank of Eng- 
land ; be it therefore enacted, That the several agreements subsisting between the said 
governor and company and the several bankers mentioned in the schedule hereto re- 
lating to the issue of Bank of England notes shall cease and determine on the thirty- 
first day of December next ; and from and after that day the said governor and com- 
pany shall pay and allow to the several bankers named in the schedule hereto marked 
(C), so long as such bankers shall be willing to receive the same, a composition at and 
after the rate of one pound per centum per annum on the average amount of the Bank 
of England notes issued by such bankers respectively and actually remaining in circu- 
lation, to be ascertained as follows ; that is to say, on some day in the month of April, 
one thousand eight hundred and forty-five, to be determined by the said governor and 
company, an account shall be taken of the Bank of England notes delivered to 6uch 
bankers respectively by the said governor and company within three months next pre- 
ceding, and of such of the said Bank of England notes as shall have been returned to 
the Bank of England, and the balance shall be deemed to be the amount of the Bank 
of England notes issued by such bankers respectively and kept in circulation ; and a 
similar account shall be taken at intervals of three calendar months ; and the average 
of the balances ascertained on taking four such accounts shall be deemed to be the 
average amount of Bank of England notes issued by such bankers respectively and 
kept in circulation during the year one thousand eight hundred and forty-five, and on 
which amount such bankers are respectively to receive the aforesaid composition of 
one per centum for the year one thousand eight hundred and forty -five ; and similar 
accounts shall be taken in each succeeding year ; but in each year such accounts shall 
be taken in different months from those in which the accounts of the last preceding 
year were taken, and on different days of the month, such months and days to be de- 
termined by the said governor and company ; and the amount of the composition pay- 
able as aforesaid shall be paid by the said governor and company out of their own 
funds ; and in case any difference shall arise between any of such bankers and the 
governor and company of the Bank of England in respect of the composition payable 
as aforesaid, the same shall be determined by the Chancellor of the Exchequer for the 
time being, or by some person to be named by him, and the decision of the Chancellor 
of the Exchequer, or his nominee, shall be final and conclusive : Provided always, that 
it shall be lawful for any banker named in the schedule hereto annexed marked (C) 
to discontinue the receipt of such composition as aforesaid, but no such banker shall 
by such discontinuance as aforesaid thereby require any right or title to issue bank 
notes." 



The following are the Banks named in the schedule : — 

Bank of Liverpool 

J. Barned & Co 

Biddulph, Brothers, & Co 

Birmingham Banking Company 
Birmingham Town & District Bank . 
Birmingham and Midland Banking Company 

Burgess & Son 

Coopers & Purton .... 
Cunliffes, Brookes, & Co. 
Deane, Littlehales, & Deane 
Dendy, Comper, & Co. 
Devon and Cornwall Banking Company 
Grants & Gillman .... 
Hampshire Banking Company . 
James W. R. Hall .... 

J. M. Head & Co 

Henty, Upperton, & Olliver . 
Thomas Kinnersly & Sons 

R. J. Lambton & Co 

289 



Liverpool. 

ditto. 
Pembroke. 
Birmingham 

ditto. 

ditto. 
Ramsgate. 
Bridgenorth. 
Blackburn. 
Winchester. 
Chichester. 
Plymouth. 
Gosport. 
Southampton. 
Ross. 
Carlisle. 
Arundel. 

Newcastle-under-Line. 
Newcastle-on-Tyne. 



A Treatise on Banking. 

Liverpool Commercial Banking Company . . Liverpool. 

Liverpool Union Bank Liverpool. 

Liverpool Borough Bank ditto. 

Manchester and Liverpool District Banking Company Manchester. 
Manchester and Salford Banking Company . . ditto. 

Monmouth and Glamorgan Banking Company . Newport. 

Moss & Company Liverpool. 

Mangles, Brothers Guildford. 

Newcastle Commercial Banking Company . . . Newcastle-on-Tyne. 
Newcastle- on- Tyne Joint-Stock Banking Company . ditto. 

North of England Joint- Stock Banking Company . ditto. 
Northumberland and Durham District Bank . . ditto. 

Portsmouth and South Hants Bank Company . . Portsmouth. 

T. & R. Raikes & Co Hull. 

Robinson & Broadhurst . . Mansfield. 

Sheffield Union Bank ... . . Sheffield. 

John Stoveld 

Sunderland Joint-Stock Banking Company . . Sunderland. 

Tugwell & Co Bath. 

Union Bank of Manchester Manchester. 

Vivian, Eitson, & Co Torquay. 

Watts, Whiteway, & Co. Newton. 

J. & J. C. Wright & Co Nottingham. 

Webb, Holbrook, & Spencer Ledbury. 

The following account of the state of the fixed issue under this Act is 
taken from the " Banking Almanac " for 1849, page 37 : — 

At Oct., 1848. 
Fixed issue of the Private Banks (England and Wales) by the Act of 

1844, £5,153,407 

Deduct 21 Private Banks, since ceased to issue, 330,919 

Amount of Private Banks' issue, £4,822,488 

Fixed issue of Joint-stock Banks, by same Act, . . £3,495,446 
Deduct 6 Joint-stock Banks, since ceased to issue, . . 85,459 

Amount of Joint-stock Banks' issue, £3,409,987 

Fixed issue of Private and Joint-stock Banks, . . . £8,232,475 

Present State op the Fixed Issues. 

1. Fixed issue in England and Wales, £ 8,232,475 

2. " Bank of England, 14,000,000 

3. " Banks in Scotland, 3,087,209 

4. " Banks in Ireland, 6,354,494 

Fixed issue in the United Kingdom, at 7th October, 1848, . . .£31,674,178 

NUMBER OF BANKS OF ISSUE IN THE UNITED KINGDOM. 

At October 7, 1848. 
1 Bank of England in England and Wales, having . . . .14 Banks. 
184 Private Banking Firms in England and Wales, having . . 375 " 
66 Joint-stock Banking Companies in England and Wales, having . 407 " 

251 Firms and Companies in England and Wales, having . . 796 Banks. 
18 Joint- Stock Banking Companies in Scotland, having . . . 403 " 
8 " " " in Ireland, having . . . 155 " 

277 Firms and Companies in the United Kingdom, having . . . 1354 Banks. 

290 



Country Private Banks. 



REDUCTION IN THE FIXED ISSUES IN ENGLAND AND WALES. 

The Maximum Circulation of the Private and Joint- Stock Banks was reduced at the under- 
mentioned dates, by the following Banks liaving ceased to issue their own Notes : — 



Date of last 
Return. 



NAMES. 



No. of 
Banks. 



Prior to the 
12th Oct., 
1844, when 
the Act 
came into 
operation. 



C 1. Bristol Old Bank. — Baillie, Ames, & Co. . 

2. Bishop Waltham, Hampshire. — Gunner & Co. 

3. Cambridge Bank. — Fisher & Sons. 

4. Ditto. — Humphrey & Son. 

5. Margate Bank. — Cobb & Co. ... 



Bank of Eng. Notes. 

Ditto. 

Ditto. 
Closed, 1845. 
Bank of Eng. Notes. 



6. Oxford Univ. and City Bank. — Sir J. Locke & Co. Ditto. 

7. Staines Bank.— Thos. Ashley & Co. . . . Ditto. 

8. Wrexham and N. Wales Bank. — R. M. Loyd. Ditto. 
1. Western District Joint-Stock Banking Company. Dissolved. 



April 12, 1845 


Sept. 13, 


" 


April 11, 


1846 


July 4, 


« 


Oct. 10, 


" 


Dec. 5, 


« 


May 29, 1847 


Oct. 9, 


" 


Oct. 16, 


u 


Oct. 23, 


'• 


" 


(C 


Oct. 30, 


" 


Nov. 6, 


CI 


Nov. 27, 


" 


July 29, 


1848 


Oct. 7, 


" 



9. Whitby Bank. — Frankland & Wilkinson. . 

2. Suffolk Joint-Stock Banking Company. 

10. Dover Union Bank. — Latham & Co. 

3. Stockton k Durham County Joint-Stock Bank. 

11. Romsey & Hamp. Bank. — Wm. Footner <fe Sons. 

4. Leeds & West Riding Joint-Stock Banking Co. . 

5. Leeds Commercial Joint-Stock Bank. 

12. Abingdon & Wantage. —Henry Knapp. 

13. Penzance Union Bk. — Ricketts, Enthoven & Co. 

14. Leek & Congleton. — Fowler, Gaunt, & Co. 

15. Salisbury & Fordingbridge Bk. — Brodie & Co. 

16. Shaftesbury & Hendon Bank. — Brodie & King. 

17. Shrewsb'y & Market Drayton. — Adams & Warren. 

18. Honiton Bank. —Flood & Lott. 

19. Bridport Bank. — Gundry & Co. 

20. St. Alban's & Herts Bank. — Gibson & Sturt. . 

21. Grantham Bank. — Kewney & King. 

22. Sheffield & Retford Bank 



York City and C'nty 

Dissolved. 

Bankrupts. 

Dissolved. 

Bank of Eng. Notes, 



Notes 



Ditto. . 
Bankrupt. 

Bank of Eng 
Bankrupts. 
Closed. . 
Bankrupts. 

Ditto. . 

Ditto. 
Closed. . 



Closed. . 



Amount. 

£ 

89,540 

1,993 
8,753 
2,615 
9,996 

15,705 
9,244 
4,464 

18,125 

£ 160,435 

2,076 

7,449 

9,577 

8,290 

3,875 

18,937 

13,914 

29,316 

31,461 

4,009 

23,335 

9,813 

9,700 

19,015 

24 ; 69S 

2,333 

19,401 

18,744 



Total Reduction in the Circulation, under Act 7 and 8 Vict. c. 32, to Oct. 7, 1848, . £416,376 



21 Private Banking Firms, having 34 Banks, 
6 Joint-Stock Banking Companies, having 18 Banks, 



. £330,919 
85,459 



£416,378 



All banks of issue are still excluded from receiving accommodation, by 
discount or otherwise, from the Bank of England. There seems, how- 
ever, to be a difference of opinion among the directors as to the propriety 
of continuing this exclusion. Mr. Morris thinks that under the Act of 
1844, the rule may be relaxed : — 

"Do you not refuse discounts to all banks of issue 1 — We have always refused dis- 
count accounts to banks issuing their own notes. 

" Upon what ground ? — The ground upon which I understand it has been refused 
is, that previous to the Act of 1844, the bank made arrangements with certain joint- 
stock banks, to induce them to adopt the Bank of England circulation ; and after the 
Act of 1844 had been passed, it was thought that it would be hard not to continue the 
same facilities to those banks which they had obtained from the bank before the pass- 
ing of the Act; that arrangement having been made for our mutual convenience." 

" It is, however, a complaint, that you have a stringent rule, by which you refused 
discounts or accommodation to all banks of issue 1 — I have no objection to state, 
speaking individually, that now that the Act of 1844 has been passed, I do not see any 
reason why they should not be placed on the same footing as the others ; but the rea- 
son the court has not acceded to that is in consequence of those parties having 

291 



A Treatise on Banking. 

worked with us at a period when it was useful to us that they should do so." {Com- 
mons, 2996 to 3000.) 

But Mr. Cotton entertains different sentiments : — 

" Can you inform the committee of the reasons why the Bank of England refuses 
accommodation to parties who issue notes 1 — There are, in my opinion, good reasons 
for that ; those reasons appear in the following paper, which I have drawn up : ' Issu- 
ing banks, were the right of discounting conceded to them, would keep an insufficient 
reserve of their own notes, of Bank of England notes, or coin, perhaps none, relying 
on discounting with the bank on every demand, and most pressing on the bank when 
it was restricting its issues. — There are about 300 banks of issue in England and 
Wales, for all of which the bank would have to provide gold. — The measure would 
tend to frustrate one of the objects of Act 7 and 8 Vict. c. 32 ( the ultimate establish- 
ment of a single bank of issue), by withdrawing a motive to banks of issue to adopt 
Bank of England circulation. It would give some ground of complaint to those bank- 
ers who have already abandoned their circulation, by placing their issuing competitors 
on a level with themselves as to discounting. It would, as respects Manchester and 
Liverpool, be inoperative, there being no banks of issue at those places. It would be 
difficult in times of pressure or adverse exchanges to control the discounts ; and such 
contraction, if enforced, would be obnoxious to such issuing banks as had been in the 
habit of discounting. The banks would consider they had acquired a right to dis- 
counts, and would probably ascribe to the capricious action of the Bank of England 
any losses consequent on a necessary contraction of accommodation.' " — (Commons, 
4312.) 

The Laws of the Currency with Reference to the Country Banks. 

These are thus stated in the article previously quoted, in the Foreign 
and Colonial Review : — 

" It will readily occur to every reader, that the laws which regulate the 
circulation of these country banks must be different from those which reg- 
ulate the London circulation of the Bank of England. They do not pay 
the public dividends ; they cannot issue their notes in purchasing bullion, 
or Government stock, or Exchequer bills, as all these operations take 
place in London, where their notes do not circulate. They are also sub- 
ject to certain restrictive laws to which the notes of the Bank of England 
are not subject. Their notes are not only legally payable on demand, 
but payment is constantly demanded ; while no one demands payment of 
a Bank of England note, unless he has occasion to export the gold. 
There is also a system of exchanges between country bankers, by which 
all notes that are paid into any of the banks are immediately brought back 
for payment to the banks that issued them. It is the practice, too, 
throughout the country, to allow interest on deposits ; and thus all notes 
not required for the actual wants of the community are promptly with- 
drawn from circulation, and lodged with a bank upon interest. 

u On inspecting the monthly returns of the country circulation for the 
last ten years, we find that the highest amount is in the month of April ; 
thence it descends, and arrives at the lowest point by the end of August, 
which is the lowest point in the year. It gradually increases to Novem- 
ber ; a slight reaction takes place in December ; but it then advances, 
until it reaches the highest point in April. The general law is, that the 
country circulation always makes one circuit in the year ; being at its 
lowest point in August, and advancing to December, and continuing to 

292 



Country Private Banks. 

advance to its highest point to the month of April, and then again de- 
scending to its lowest point in August. 

" The laws which regulate the circulation of the country banks are de- 
rived from the state of trade in the respective districts in which the banks 
are established. As these banks are chiefly located in agricultural dis- 
tricts, the operations of agriculture have a very considerable influence in 
their regulation. Hence the advance in the spring, and the advance 
again after August, in consequence of the harvest. It is clear that the 
laws must be uniform in their operation, because the fluctuations of circu- 
lation in each year are uniform, and constantly recur with the return of 
the season. The slight reaction in December is probably occasioned by 
the collection of the public revenues and of landlords' rents in the coun- 
try districts, and the general dulness of trade in that month. 

" It may also be observed, that the issues of the joint-stock banks, and 
of the private banks, are subject to the same laws. The issues of both 
classes of banks rise together and fall together, and they have maintained 
nearly the same relative amount during the last seven years. 

" The laws which regulate the annual fluctuations of the country circu- 
lation, that is, which determine the variations in the amounts of the coun- 
try circulation, not within the year, but taking corresponding periods of 
different years, are also dependent on the state of trade in those years. 
If there be an increase of trade without an increase of prices, more notes 
will be required to circulate the increased quantity of commodities. If 
there be an increase of commodities, and also an advance of prices, a 
still larger amount of notes would be required. There are also other cir- 
cumstances that may permanently affect the amount of the country circu- 
lation. 

41 During the last five years there has been a gradual reduction in the 
annual amount of the country circulation, as appears from the following 
Table, which shows the average amount in each year, from 1839 to 
1843, both inclusive : — 



1839, 
1840, 
1841, 



£11,715,527 

10,457,057 

9,671,643 



1842, 
1843, 



£8,249,052 
7,667,916 



" We attribute this extensive reduction in the country circulation to the 
following causes: — First, The great dulness of trade which has taken 
place in every part of the country. Secondly, The fall in the price of 
corn in connection with bad harvests. Thirdly, The introduction of the 
penny postage, and the system of registered letters. The uniform penny 
post was commenced on the 10th of January, 1840, and the registry of 
letters on the 6th of January, 1841. In consequence of these arrange- 
ments, every banker sends. off every night, either to London or elsewhere, 
for payment, all the notes of other banks he may have received during 
the day, excepting those issued in the same town. This must have occa- 
sioned a large reduction in the amounts returned as notes in circulation. 
The amount in the hands of the public is the same, but the amount in the 
hands of other bankers is considerably reduced. Fourthly, The practice 
of keeping banking accounts has extended very much of late years. In- 

293 



A Treatise on Banking. 

stead of carrying notes in their pockets as formerly, people now lodge 
the notes with their banker, and make their payments by giving cheques 
on the bank. The facilities of travelling by railways and other means 
have also tended to diminish the amount of notes in circulation, and to 
cause them to be returned more rapidly for payment to the bankers. 
Fifthly, the circulation of the private bankers has been reduced by fail- 
ures, and by merges into joint-stock banks ; and, on the other hand, sever- 
al joint-stock banks have withdrawn their own notes, and made arrange- 
ments for issuing the notes of the Bank of England." 

It will be seen by the following Table, that the country circulation is 
governed by the same laws since the passing of the Act of 1844 : — 

An Account of the average Circulation of the Private and Joint- Stock Banks of Issue, 
during the last Week in the Months of April, August, and December, for the Years 1845, 
1846, 1847, and 1848. 

Private Banks. Joint-Stock Banks. 



Date. 


No. of Banks. 


Authorized 
Issue. 


Cirfulalion. No. of Banks. 


Authorized 
Issue. 


Actual 
Circulation. 


1845. 




£ 


£ 




£ 


£ 


April 26 


199 


5,011,097 


4,655,636 


71 


3,477,321 


3,272,034 


Aug. 30 


199 


5,011,097 


4,369,458 


71 


3,477,321 


3,129,952 


Dec. 27 

1846. 

April 25 


197 


5,009,021 


4,481,038 


70 


3,469,872 


3,160,010 


197 


5,009,021 


4,700,170 


70 


3,469,872 


3,229,744 


Aug. 29 


197 


5,009,021 


4,384,136 


70 


3,469,872 


3,085,200 


Dec. 26 


196 


4,999,444 


4,528,208 


67 


3,418,277 


3,145,702 


1847. 














April 24 


196 


4,999,444 


4,700,169 


67 


3,418,277 


3,228,717 


Aug. 28 


196 


4,999,444 


4,150,688 


67 


3,418,277 


2,927,462 


Dec. 25 


187 


4,880,389 


3,525,157 


65 


3,261,906 


2,417,528 


1848. 














April 29 


187 


4,880,389 


3,919,739 


67 


3,409,987 


2,834,799 


Aug. 26 


187 


4,880,389 


3,473,839 


67 


3,409,987 


2,455,664 


Dec. 30 


184 


4,822,488 


3,492,340 


66 


3,409,987 


2,529,498 



From the pressure in the year 1847, the country circulation in Decem- 
ber was less than in August. Will they who contend that country bank- 
ers can extend their issues as they please, have the kindness to inform us 
why those bankers did not increase their issues when money was so val- 
uable ? 

1 cannot better state my own views of the principles of the country 
circulation, than by transcribing a portion of my evidence given before 
the Committee on Banks of Issue, in March, 1841, when examined by 
Sir Robert Peel : — 

" Sir Robert Peel. — Would you recommend that the paper thus is- 
sued should be convertible into gold at the will of the holder ? — Yes. 

" You think that is an absolutely necessary check against excessive 
issues ? — I think it is a necessary check. 

" What reference is made in the issue of paper to the quantity of gold 
in the country, and to the ultimate ability of the parties to discharge their 
paper engagements in gold ? — The bankers in issuing their notes do not 
make any reference to the quantity of gold in the country, but they make 

294 



Country Private Banks. 

reference to their ability to discharge those notes when returned to them 
for payment. 

" What is the nature of the reference which they make ? — By keep- 
ing securities available for the purpose of being sold in order to discharge 
those notes whenever presented to them for payment. 

" They have no reference whatever to the state of the exchanges ? — 
No ; when I say no, I mean not with the view of regulating the amount 
of notes by the exchanges ; but bankers, whether banks of issue or not, no- 
tice the exchanges as naturally as they would notice the prices of the funds, 
in order that they may be able to judge as to the future value of money, 
so as to exercise their discretion with reference to their investments. 

" They do not notice the state of the exchanges with a view to deter- 
mine the policy of contracting or increasing their issues ? — No ; not 
with a view of making the amount of their issues correspond. If they 
see that the exchange is likely to become unfavorable, bankers will natu- 
rally be more cautious in making advances, and more cautious of com- 
ing under engagements, than they would be when they found that the ex- 
changes were favorable ; but there is no intention on the part of the coun- 
try banks to make their notes correspond with the amount of the bullion 
in the Bank of England. 

" A country banker would rely upon the sale of his securities, and 
that only in case of a demand for gold ? — In case of a general run, he 
would depend upon the stock he had in hand, and the further stock he 
might realize by a sale of securities. 

" If all parties continued to issue, none of them having reference to 
the state of the exchanges, but relying upon the available resources which 
a sale of securities might supply, do not you think that there might be a 
danger of a sudden demand for gold, and of an inability on the part of 
those issuers to discharge their engagements in gold ? — I do not think 
there would be any danger of that at all, because each bank would take 
care of itself; if you suppose that the whole circulation of the country 
comes in at once and demands gold, it is quite clear that gold cannot be 
found to pay it off, and that is equally the case with the Bank of England 
and any other bank, and it is equally the case with us who are banks of 
deposits ; if all the depositors were to come together at the same time 
and require their deposits, we should be unable to pay them, but wc 
could realize our securities, and pay them off, if they were to come 
gradually. 

" Suppose there was one bank which had the charge of the paper cir- 
culation of the country, and had the means, therefore, by constant refer- 
ence to the state of the exchanges, of determining the amount of the pa- 
per circulation, do not you think that there would be a greater security 
against a sudden demand for gold, and an inability to pay that gold, than 
there is when there are a great many issuers, none of whom, according 
to your own statement, pay the slightest regard to the state of the exchan- 
ges ? — No, I think not. 

- " What then supplies the check ? — The check upon the private bank- 
ers is, that their circulation cannot be issued to excess ; whereas, if you 
had a bank which should issue notes for so much gold, then every time 
U 295 



A Treatise on Banking. 

there was a favorable course of exchange, there would be a large issue 
of notes, which notes would necessarily reduce the rate of interest, lead 
to speculation, and turn the exchanges again by causing investments to be 
made in foreign countries. Now, as issues are at present conducted, 
bankers are under several checks which would not apply to such a bank ; 
for instance, the check of the interchange with each other of their differ- 
ent notes once or twice a week, and the check of having their notes pay- 
able on demand ; whereas the notes of such a bank as you suppose would 
not be diminished except when gold was wanted to be sent abroad. 
Another check is the practice of giving interest upon deposits, by which 
all the surplus circulation is called in and lodged with the banks ; now, 
such a bank as you have supposed would not be under the control of 
those checks, and it would be under the necessity of increasing the cir- 
culation whenever the exchange became favorable ; and we know by ex- 
perience, that the most sure way of making the exchanges unfavorable is 
a previous excessive issue ; that previous excessive issue would necessari- 
ly arise, on the principle you have supposed, every time the exchange was 
favorable. 

" You think that there is some cause in operation which applies equally 
to all issuers of paper, and prevents any undue issue of paper, and dis- 
penses with the necessity of any reference, on the part of each issuer, to 
the state of the exchanges ? — That is the case with all country issuers of 
paper. With regard to the Bank of England, who have the power of is- 
suing their notes in exchange against bullion, in the purchase of Excheq- 
uer bills and Government stock, it is quite clear that notes put into opera- 
tion in that way, being thrown in a mass upon the previously existing 
state of trade, will have the effect of raising prices and reducing interest, 
and turn the exchanges ; but if notes are issued merely to pay for trans- 
actions that have previously taken place, and are drawn out by the oper- 
ations of trade, those notes will have no such effect. 

" Supposing, at present, the Bank of England observed that the ex- 
changes continued unfavorable for a long period, and that there was a 
progressive diminution in the amount of their bullion, and supposing that 
they saw that in the course of two years their bullion was reduced from 
ten millions to four millions ; do you think it would be desirable that the 
Bank of England should take any step whatever to guard against the ul- 
timate consequences of that state of things, by restricting the paper cir- 
culation ? — I think such a case may occur, but I think in ordinary times 
the Bank of England might hold foreign securities, by which they would 
bring back gold to this country, and thus prevent any necessity for a con- 
traction of the circulation ; at the same time, I do not at all question the 
possibility of such a case occurring as may render a contraction necessa- 
ry ; nor do I at all question the influence of a contraction to have some 
effect upon the exchanges ; but I contend that, as an ordinary principle 
of action, the bank ought not to expand their circulation, so as to cause 
the exchanges to be unfavorable, nor calculate upon a contraction of the 
circulation for the purpose of remedying the exchanges. 

" Then you do think that the expansion of the circulation of the Bank 
of England may cause unfavorable exchanges ? — Yes. 

296 



Country Private Banks. 

" Why should not the expansion of the circulation on the part of the 
country issuers produce the same effect ? — Because the country circula- 
tion is under checks, whereas the Bank of England circulation is not ; the 
country circulation can be issued only in consequence of transactions 
which have taken place, and to the extent only required by the wants 
of the district ; whereas it is obvious that the Bank of England has the 
power of increasing the circulation by the purchase of exchequer bills 
or stock, or by purchasing bullion, and throwing a mass of notes on the 
market when the state of trade does not require them.'" 

Chairman. — " Have you any further observations to make to the com- 
mittee ? — When the first question was asked of me, at the commence- 
ment of my examination, I stated that I appeared before the committee 
as the representative of the joint-stock banks, and that, therefore, in ex- 
pressing any opinions consistently with the resolutions which they had 
passed, I wished to be considered as speaking the sentiments of the joint- 
stock banks, but, should the committee ask me any question not connect- 
ed with the circumstances of country issues, that I wished to be consid- 
ered as speaking my own individual opinions. The points upon which I 
wish to be considered as speaking the sentiments of the joint-stock banks 
are as follows : I speak the opinions of the joint-stock banks, in saying 
that their circulation cannot be made to fluctuate in exact conformity with 
the circulation of the Bank of England, or with the stock of gold in the 
Bank of England ; that the country issue is drawn out by the demands 
of trade, and is subject to checks to which the circulation of the Bank of 
England is not liable ; that the country bankers have not the power of is- 
suing their notes to excess ; that they cannot contract their circulation or 
expand it as they please ; and also, that the country circulation does not 
influence the prices of commodities, and that it cannot be regulated by 
the principles of the foreign exchange. I speak the opinions of the joint- 
stock banks when I say that the abolition of the country circulation would 
cause veiy considerable distress ; would limit the power of the country 
banks to grant the same accommodation to their customers ; would com- 
pel many of their customers to sell their property, thus lessening the val- 
ue of real property ; that country bankers would be compelled to increase 
their charges to their customers ; and, in some cases, that those banking 
establishments would be altogether abolished, in consequence of not be- 
ing able to supply sufficient profit for carrying them on ; that, in some 
other cases, however the country circulation would be substituted or super- 
seded by a bill circulation, nevertheless considerable distress would exist 
throughout the country, and that not only country banks themselves, but 
their customers and the public in general, would be subject to very con- 
siderable loss and inconvenience. In other opinions which I have ex- 
pressed with regard to the regulation of the currency, and the principles 
upon which the Bank of England ought to be managed, also, as regards 
the extracts which have been made from my own works, and other mat- 
ters I need not particularly specify, I wish to be understood as giving my 
own opinions, without saying whether those opinions do or do not meet 
the concurrence of the joint-stock bankers. I take the responsibility of 
these entirely upon myself." 

297 



A Treatise on Banking. 

The country bankers residing in the same neighbourhood usually make 
their exchanges once a week, and pay the difference in London on the 
following day. This arrangement is of considerable advantage to all par- 
ties. Suppose I as a country banker receive in the course of a week the 
sum of £ 10,000 in the notes of a neighbouring bank, and that bank re- 
ceives the same amount of my notes ; if we exchange notes, there is an 
end of the transaction. I pay the notes that bank has upon me by the 
notes I have upon that bank, and each of us has £ 10,000 less in circula- 
tion. But suppose we refuse to exchange notes with each other, then I 
take his notes and demand Bank of England notes and sovereigns, and 
he does the same with me. Hence each of us must keep a balance of 
£ 10,000 more in gold or Bank of England notes, and also an additional 
sum to answer any sudden emergency that may arise at any time from 
that banker having more than the usual amount of notes, and to meet any 
run that he may be disposed to make upon me. Thus it is that country 
banks, by exchanging notes, and receiving payment of the difference in 
London, are enabled to carry on their business with a less amount of 
ready cash, and to prevent the danger that might arise from being run 
upon by each other. Those banks only exchange which are in the same 
neighbourhood. Were I to receive the notes of a bank at some distance 
off, I should send these notes to London, and that banker would send my 
notes to London, and they would be paid by our London agents. We 
should not exchange with each other, because it would cost more to send 
a messenger with the notes to be exchanged, than it would cost postage to 
London. Here I have to pay the postage of 'these notes to London, and 
1 have also to pay the expense of having my notes which have been paid 
in London sent down to me. 

The exchange between any two banks established in the same place, 
will be regulated by the character and extent of the business they may 
respectively carry on. The balance may for a considerable length of 
time be uniformly in favor of one of these banks, and then for a consider- 
able period in favor of the other ; or it may fluctuate weekly, and at the 
year's end be found to be neither favorable nor unfavorable. I shall en- 
deavour to investigate the causes which govern these changes. In the 
first place, I shall presume that each bank is a bank of deposit, of discount, 
of remittance, of agency, and of circulation. The claims upon each bank 
will then consist of, — 1. Cheques drawn against deposit accounts. 2. Its 
own notes. 3. Notes issued by its agents or other branches. 4. Letters 
of credit granted by agents or branches. These claims or obligations will 
get into the possession of the rival bank by some of the following ways : 
— 1. As lodgments on deposit accounts. 2. In payment of local bills. 
3. For bills or letters of credit on agents or branches. 4. Received for 
collection by post from some agents or branches. The exchanges will 
now be more or less favorable according to the following circum- 
stances : — 

1. The discounting of bills not payable in the place where the banks 
are established, has a tendency to render the exchanges unfavorable. 

If, for example, a country banker discounts bills payable in London, he 
issues his own notes for the amount at the time the bill is discounted, and 

298 



Country Private Banks. 

some of these notes will get into the rival bank and render the exchanges 
unfavorable. When the bills are due, the London agent receives the 
amount from the accepters ; but this has no effect on the local exchange. 
Hence a bank that discounts a large amount of London bills must expect 
to have large sums to pay in the exchanges. There are some cases, 
however, in which the discounting of London bills will not affect the local 
exchange : these are, — 1. When the amount of the bill is not taken in 
notes, but in a draft on the London or some other agents. 2. When the 
amount of the bill is placed to the party's current account, the exchanges 
will not be affected so long as it remains on that account. 3. The ex- 
changes will not be affected, if the notes issued for the London bill should 
be retired either by the bank that issued them, or by any of its agents. 

2. If a bank has to pay a large amount, or letters of credit, issued upon 
it by its agents or branches, the exchanges may become unfavorable. 

The exchange between any two banks may be affected by other cir- 
cumstances than local connections. If one bank is drawn upon by agents 
or branches, or has to pay notes issued by agents or branches, and the 
other has no such connections, then the exchange will be unfavorable to 
the former bank and favorable to the latter. Some of these notes or let- 
ters of credit, and some of the notes issued for the letters of credit, will 
probably get into the possession of the rival bank, and appear in the ex- 
change. 

3. If a bank issues a large amount of bills, or letters of credit upon its 
agents or branches, the tendency is to render the exchange favorable. . 

The bank receives the money for these bills or letters at the time it 
issues them. This money will often be composed of the notes chiefly in 
circulation, and a part of them will consist of the notes or obligations of 
the rival bank, and will be paid in the exchange : or if the bank receive 
from its agents or branches any claims upon the rival bank, or even any 
bills to be collected, the effect will be to render the exchange favorable in 
the same way as the granting letters of credit upon those agents or 
branches. 

4. The increase of lodgments on current accounts has a tendency to 
render the exchanges favorable. 

On these accounts money is received and money is paid out daily. 
The receipts of money tend to throw the exchange in favor of a bank, be- 
cause some portion of these receipts will consist of the obligations of the 
rival bank. The payment of money tends to render the exchange unfa- 
vorable, because some of the notes issued in payment will find their way 
into the other bank. When therefore the receipts are more in amount 
than the payments, the exchanges are likely to be favorable. When the 
total deposits lodged in a bank continue to increase, the exchange will 
probably be favorable during the progress of such increase ; but after the 
deposits have ceased to increase, the exchange will not be more favorable 
than before the increase began. As long as the amounts of the deposits 
in the respective banks remain stationary, the operations on those ac- 
counts will not affect the exchanges, although the deposits in one bank 
may be twice the amount of those in the other. But if from a transfer of 
accounts or from other causes the deposits increase in one bank and di- 

299 



A Treatise on Banking, 

minish in the other, the exchanges during these operations will be in favor 
of the bank whose deposits are on the increase. But let the progress of 
increase be over, and the amounts of the respective lodgments become 
permanently fixed, then as far as the operations on the current accounts 
are concerned the exchanges will again be equal. 

5. An increase in the amount of local bills under discount has a ten- 
dency to render the exchanges unfavorable. Local bills are bills payable 
in the place where the bank is established. The operations on the local 
bill account are similar to those on the deposit account. When these bills 
are discounted, notes are issued, — when the bills are paid, notes are re- 
ceived. When the amount of local bills paid is greater than that dis- 
counted, the tendency is to render the exchanges favorable. Thus, to re- 
duce the amount of local bills under discount, is to render the exchanges 
favorable ; and to increase the amount, is to render them the reverse. 
But though the operations on the local bill account are similar in their 
nature to those on the current accounts, yet the effect is different as to 
their influence on the exchanges. For as the amount of the local bills 
under discount increases, the exchanges become unfavorable : but as the 
deposits increase, the exchanges become advantageous. In the increase 
of local bills, the issue of notes will be more than the receipts ; but in the 
increase of the deposits, the receipts will be more than the issues. 

As the laws of the country circulation are the same, whether the notes 
are issued by private or by joint-stock banks, I have introduced the subject 
into this section on the Private Country Banks, and have altogether omit- 
ted it in the following section on the Country Joint-Stock Banks. 



Section V. — COUNTRY JOINT-STOCK BANKS. 

By a clause in the charter of the Bank of England, no partnership 
formed for carrying on the business of banking could consist of more 
than six persons, but by an Act passed in the year 1826, copartnerships 
of more than six in number are permitted to carry on business as bankers 
in England, sixty-Jive miles from London, provided they have no house 
of business or establishment as bankers in London, and that every mem- 
ber of such copartnership shall be responsible for all the debts of the 
company. They must also deliver to the Stamp-office the names and 
places of abode of all their members, and also a list of their officers. 
These lists are to be copied into a book, which any person is entitled to 
see on paying one shilling, and to obtain a copy for ten shillings. The 
banks may sue and be sued in the name of their public officer, and exe- 
cution upon judgment may be issued against any member of the copart- 
nership. 

We take the following account of these banks from a Report of a Com- 
mittee of the House of Commons, appointed in the year 1836 to inquire 
into the operation of the Act 7 Geo. IV. c. 46, for permitting the estab- 
lishment of Joint-Stock Banks : — 

300 



Country Joint- Stock Banks. 

" The evidence taken before your committee, and the returns from the Stamp-office, 
establish the fact that these banks are rapidly extending in all directions ; that new 
companies are daily forming, and that an increased number of branches and agencies 
are spreading throughout England, even in small towns and villages ; that a principle 
of competition exists, which leads to the extinction of all private banks, and to their 
conversion into banking companies. The mode in which this is effected, and the prin- 
ciple on which the issue of transferable shares acts at once on private banks, and gen- 
erally on commercial credit, is fully developed in the evidence. 

" Your committee have had before them the deeds of settlement of the greater num- 
ber of the existing joint-stock banks, and they proceed to submit to the House an 
analysis of some of their leading provisions. 

" Though the general objects of these establishments are much alike, yet there 
are some variations in their deeds of settlement which it may be material to point 
out. 

" First, as to the power of altering the regulations of the company. 

" The active duties are generally delegated to a small body called the directors, 
while the main body of proprietors reserve to themselves the power of selecting the di- 
rectors, and of altering from time to time the rules by which the directors are to be 
governed. Indeed, it might have been expected that the proprietors would always 
have reserved to themselves this power ; nor should this general rule have been no- 
ticed, had it not been necessary to point out a single exception to it, in the case of one 
particular company, in which all the powers of the company are vested in the directors 
of the central bank, till January, 1838, and even after that date this authority is only to 
be controlled by the ' general board of directors,' consisting of the central directors 
themselves, and of the local directors of branch banks, appointed by them. The deeds 
of all the other companies expressly give a power to the shareholders to make new 
laws and regulations. 

" Secondly, as to the mode of conducting the business of banking. 

" This is for the most part set out in general terms. Some banking companies con- 
tent themselves with defining the business to be 'banking in all its branches' ; in other 
cases, it is called ' the business of bankers.' 

" Advancing money on real security is in no instance forbidden. The deeds of three 
companies are silent on the subject ; the rest expressly allow it. 

" The majority of the deeds are silent on the subject of the purchase of land. The 

Banking Company expressly allows it. The Banking 

Company and the Union Banking Company expressly forbid it. 

" An advance of money on mining concerns is in no instance expressly allowed ; in 
many it is expressly forbidden ; in the majority, it is passed over in silence. 

" Advances of money upon any ' public foreign government stock, or the stock of 
any foreign chartered public company.' is directly sanctioned in the deeds of four 
banking companies. Investment in foreign government stock or funds is allowed by 
the deed of another bank. Such advances are expressly forbidden by many of the 
deeds, and are passed over in silence by many others. 

" In no instance is the company forbidden to become the purchaser of its own 
shares ; but, on the contrary, power is expressly given to do so by means of the deeds, 
and that to any amount. The only modifications of this power which your committee 
have found are in the case of one banking company, in which the directors are au- 
thorized to purchase shares in the case only of a refusal to admit as a proprietor the 
person proposing to buy ; and in the case of another bank, the number of shares to 
be bought in by the directors is restricted to forty. 

" Thirdly, as to the degree of publicity to be given to the proceedings. 

" No principle seems to be more attended to, or prominently put forward, than that 
of preserving secrecy as to the state of the accounts of the customers of the banks. 
To this principle there does not appear to be an exception. 

" The directors are in general required to sign a declaration pledging themselves to 
observe secrecy as to the transactions of the bank with their customers, and the state 
of the accounts of individuals. In some of the companies, this declaration is also to 
be signed by all the clerks and officers. One banking company goes so far as to re- 
quire an oath to this effect. If the proprietors are dissatisfied with the statement of 
accounts made by the directors, a power is generally reserved to appoint auditors or 
inspectors for the examination of the books ; but these auditors or inspectors are re 
quired to sign a similar declaration of secrecy. 

301 



A Treatise on Banking. 

" No proprietor, not being a dh ector, is entitled to inspect any of the books of the 
company. 

" The directors are in general bound to exhibit to the general meeting of the share- 
holders a summary or balance-sheet of their affairs, and to make such further state- 
ment or report as the directors may deem expedient and conducive to the interests of 
the company. In the case of one of these banks, even this is not obligatory by the 
terms of the deed, which leave it to the discretion of the directors whether they do 
or do not exhibit a balance-sheet. In a very extensive bank, the proprietors annually 
appoint auditors to examine the affairs of the company, and to report therein. 

" In some of the companies the principle of secrecy is carried still further : two of 
the directors, selected from the rest, are the exclusive depositors of the power of in- 
specting the private accounts of customers. These persons are sometimes called 
1 confidential directors.' This provision is stated to be made ' in order that the credit 
and private transactions of individuals may be preserved inviolate.' Sometimes they 
are called ' managing directors ' ; sometimes ' special directors.' In other companies, 
though all the directors have the power of inspection of the accounts of customers, 
two of the directors are selected to inspect bills and notes, 'in order to prevent the 
exposure of such bills of exchange and promissory notes as may pass through the 
bank. These two directors are called ' the bill committee.' In two of the com- 
panies, a single person, called ' the manager,' has the exclusive power of inspecting 
bills and notes. 

" Fourthly, as to the terms on which the company is to be dissolved. 

" The deeds of all these companies contain some provision for dissolution in certain 
contingencies. It is in general provided that a dissolution of the company shall take 
place by reason either of a certain amount of loss, or of a voluntary agreement. Dis- 
solution by reason of loss in the great majority of the deeds is provided for in the fol- 
lowing manner. 

" It is necessary to premise that the directors of each of these companies are bound 
to set aside a certain portion of the profits to form a fund to meet extraordinary de- 
mands, which fund is sometimes called the ' surplus fund,' sometimes the ' reserve fund,' 
but more usually the ' guarantee fund.' The ordinary provision for dissolution is to 
this effect : — That if the losses sustained shall at any time have absorbed the whole 
of this guarantee fund, and also one fourth of the capital paid up, then any one share- 
holder may require the dissolution of the company, which shall take place accordingly, 
unless two thirds in number and value of the shareholders shall be desirous of con- 
tinuing the company, and shall purchase the shares of those proprietors who wish to 
withdraw. In one bank the dissolution of the company takes place upon a loss of 
one fifth instead of one fourth of the capital. In two other banks no mention is made 
of the guarantee fund. 

" The provision of the great majority of deeds, as above stated, is, that in the event 
of a given amount of loss, any one shareholder may propose the dissolution. In some, 
three shareholders are required. In the Banking Company A. the requisition for dis- 
solution must be made by ten shareholders holding 200 shares ; in the Bank B. by 
one fourth of the company ; but if the loss amount to one half the capital, then by 
any single shareholder. 

" By the general provisions of the great majority of deeds, the dissolution of the 
company, though duly proposed, may be averted by two thirds of the proprietors ; but 
in some there exists no such restriction ; and on the occurrence of a given amount of 
loss, the dissolution, if proposed, must necessarily take place. In other instances, on 
the appearance of a given amount of loss, the dissolution is to take place immediately, 
even though no partner should propose it." 

LIST OF COUNTRY JOINT-STOCK BANKS. 

The following Tables contain a complete exhibit of the Country Joint- 
Stock Banks, as in existence, July, 1849, arranged in alphabetical order, 
and showing, — I. The location of the Head Office. II. When established. 
HI. Number of Branches. IV. Paid-up Capital. V. Reserved Fund. 
VI. Last Dividend. VII. Amount of Authorized Issue. VIII. Name 
of Manager. 

302 



Country Joint- Stoc/c Banks. 





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304 



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305 



A Treatise on Banking. 



We have no official return of the present amount of the paid-up capital 
of all the joint-stock banks. But from the best information that has been 
collected on the subject, it would appear that the number of partners in 
all the banks in England (including those of London) is about 23,000, the 
paid-up capital about £ 14,000,000, and the reserved funds £ 2,000,000. 

The following country Joint-stock Banks in England have stopped pay- 
ment. As we have elsewhere discussed the causes of the failure of joint- 
stock banks generally, we need make no observations on them individu- 
ally. 



1 . Birmingham — Birmingham Borough Bank 

2. Devonport — Western District Bank 

3. Leamington — Leamington Bank 

4. Leeds — Leeds and "West Riding Bank 

5. Liverpool — Liverpool Banking Company 

6. Manchester — Bank of Manchester . 

7. Manchester — Commercial Bank of Eng- } 

land j 

8. Manchester — Imperial Bank of England 

9. Newcastle — Newcastle Joint-Stock Bank 

10. Newcastle — North of England Bank 

11. Sheffield— Sheffield and Retford Bank 

12. Southampton — Southern District Bank 

13. Walsall — Walsall and South Stafford- 

shire Bank 

14. York — Yorkshire Agricultural and Com- 

mercial Bank 



Date of 
Establishment. 

Mar. 1837 
Sept. 1836 
May, 1835 
Oct. 1835 
Mar. 1836 
Mar. 1829 

Aug. 1834 

Dec. 1836 
July, 1836 
Dec. 1832 
Aug. 1839 
Dec. 1836 

Aug. 1835 
Aug. 1836 



Date of 
Stoppage 

1840 
1844 
1837 
1846 
1847 
1842 

1840 

1839 
1846 
1847 
1846 
1841 

1840 
1843 



No. 1 was formed out of the remnants of a branch of the Northern and 
Central Bank of England. No. 4 was formed on the private bank of 
Messrs. Smith & Son. No. 5 was at first called the Tradesman's Union 
Bank, and under that title made returns to the Joint-stock Banking Com- 
mittee of the House of Commons in 1836. No. 10 is now winding up its 
affairs under " The Joint-stock Companies' Winding-up Act, 1848." 

The following Joint-Stock Banks wound up their affairs without stop- 
ping payment : — 

1 . Ipswich — Suffolk Banking Company 

2. Leeds — Yorkshire District Bank . 

3. Leeds — Commercial Bank of Leeds . 

4. Liverpool — Albion Bank .... 

5. Liverpool — Phoenix Bank 

6. Manchester — Northern and Central Bank) 

of England > 

7. Manchester — South Lancashire Bank . 

8. Manchester — Alliance Bank 

9. Oldham — Oldham Banking Company . 

No. 2 was discontinued, and the shareholders formed a new bank, 
called the Yorkshire Banking Company, taking all the premises and offi- 
cers of the old bank. No. 3 was formed on the private bank of Messrs. 
Bywater & Co. No. 4, The Tradesman's Bank of Liverpool merged in 
this bank. Afterwards it wound up, paying back to its proprietors all the 

306 



Date of 


Date of 


Establishment. 


Winding up. 


April, 1842 


1845 


Aug. 1834 . 


. 1843 


July, 1836 


1846 


May, 1836 . 


. 1842 


Jan. 1837 


1838 


Mar. 1834 . 


. 1836 


May, 1836 


1843 


Oct. 1839 . 


. 1841 


Sept. 1836 


1847 



Country Joint-Stock Banks. 

capital and a bonus besides. No. 5 Was formed out of the remnants of a 
branch of the Northern and Central Bank ; it existed only a short time. 
No. 8, The Northern and Central Bank, realized about 10s. in the pound 
of its capital. Some of the shareholders with that portion of their capital 
formed this bank. It never did much business, and after a while its capi- 
tal was lent to the Bank of Manchester, upon the promissory notes of that 
bank, at two or three years' date, bearing interest at 5 per cent. No. 9 : 
a well-managed bank, but having only a small capital, the directors deter 
mined, after the pressure of 1847, to wind up its affairs. 
Banks which stopped, and soon afterwards resumed : — 



1. Liverpool — Royal Bank of Liverpool 

2. Liverpool — North and South Wales Bank 

3. Newcastle — Union Bank of Newcastle 

4. Nottingham — Nottingham and Nottingham- ) 

shire Banking Company . . . ) 



Date 

Estcibli> 




May, 
May, 
July, 


1836 
1836 . 
1836 


April, 


1834 . 



Date of 
Stoppage. 

1847 
1847 
1847 

1842 



Nos. 1 and 2 stopped during the pressure of 1847, but soon afterwards 
resumed. No. 3 stopped at the same period, but have resumed at three of 
their branches, and are about to resume at Newcastle. No. 4 was stop- 
ped in 1842 by their London agent. They changed their agent, and re- 
sumed. 



The following Joint-stock Banks have merged in other Joint-stock 
Banks : — 

Banks into which. Date of When 

Banks. they merged. Establishment, merged. 



1. Birmingham — Bank of Binning- ) Birmingham Banking ) . 1QOO 
ham . . . . -5 Companv . .} Au S- 1832 

^Bank Pr0Vindal j Nov. 1835 

Ditto . . May, 1842 

East of England Bank Mar. 1827 

I Dec. 1838 



2. Lichfield — Lichfield, Rugeley, and ) 

Tamworth Banking Company $ 

3. Newport — Isle of Wight Banking ? 

Company . . . . 5 

4 Norwich — Norwich and Norfolk ) 

Bank .... 5 
5. Stockton — Stockton and Durham ) 

County Bank . . . . $ 



National Provincial 
Bank . 



1837 
1838 
1844 
1836 

1846 



" Return of the Joint-stock Banks which have been established under 
the provision of the Act 7 Geo. IV. c. 46, stating the period when, and 
the place where, established, and likewise the dates at which any such 
banks, once established, had ceased to exist." Besides those we have 
mentioned, this list contains the following : — 



The Period when The Places wfiere 



Name of the Bank. established. 

1. Bank of South Wales . Feb. 26, 1835 

2. Bristol Old Bank . June 16, 1826 

3. BuryandHeywoodBank- > g iy lg36 

mg Companv . . > 

4. Central Bank 6f Liver- \ Dec 3 1836 

pool ... J 

5. Gloucester County and > Dec 31 1834 

City Bank • • 5 

307 



establislied. 
Carmarthen 
Bristol 
Bury and 

Heywood 

Liverpool 



Date of ceasing. 

Last license, Oct. 1836. 

Last license, Oct. 1840. 
i Last and only return, 
I Sept. 1836. # 

Last return, April, 1 839 . 



Gloucester Last return, June, 1836 



A Treatise on Banking. 

The Period tchen The Places where 
Name of the Bank. established. established. Date of ceasing. 

6 H wilts Bank ' N ° rth } Nov ' U > 1834 { H MoTd e11 ^ } Last license ' 0ct ' 1835 ' 

7 Leicestershire and War- 5 

wickshire Joint-stock > Sept. 14, 1840 Hinckley . Last license, Oct. 1840. 
Banking Company ) 
8. Leith Banking Company Nov. 23, 1837 Carlisle . Last license, Oct. 1836 

9 - ^^lti° mhChe :}^r 25, 1839 Nantwich. 

No. 1 is the private bank of Messrs. Watkins & Co. The number of 
partners exceeding six, the firm was registered as a joint-stock bank. 
The number has been reduced by death, and therefore the registry is no 
longer required. The head office is at Brecon. No. 2. This is the pri- 
vate bank of Messrs. Elton, Baillie, & Co., who, having eight partners, 
registered as a joint-stock bank. Three of the partners have since died, 
so that the number is reduced to five. Since the year 1844 they have 
discontinued the issue of their own notes. No. 3. This bank was in ex- 
istence only a few months. No. 4. This was a small, ill-regulated bank, 
that brought itself to a close. No. 5. This bank was formed by Mr. 
Charles Cripps, who had been the agent of the Bank of England branch 
at Gloucester. It existed for a short time, and then became a branch of 
the County of Gloucester Bank. No. 6. This bank had seven partners. 
It is presumed to have been the private bank of Messrs. Douglas, Swalley, 
& Co., who stopped payment in the year 1839. No. 7. This bank was 
formed on the private bank of Messrs. Heming & Needham, at Hinckley. 
It continued only a very short time. No. 8. The Leith Banking Com- 
pany had a branch at Carlisle, and consequently registered as an English 
bank. No. 9. This was a small, but respectable bank, that transferred 
its business, on the 1st of January, 1845, to the Manchester and Liverpool 
District Bank. 

Two joint-stock banks have failed in the Isle of Man. 

1. The Isle of Man Joint-stock Bank. This bank was formed on the 
private bank of Messrs. Forbes & Co. They were largely in debt to their 
London agent, and their affairs have led to much litigation. 

2. The Isle of Man Commercial Banking Company. The business of 
this bank has been taken up by the City of Glasgow Bank, who have 
opened a branch in the island — called the Bank of Mona — under the 
management of Mr. John Stanway Jackson, who was formerly manager 
of the Manchester and Liverpool District Bank. 

The following are the provisions of the Act 7 & 8 Vict. c. 113, passed 
in 1844, to regulate Joint-stock Banks in England : — 

No Joint- Stock Bank established after 6th May last to cany on business unless by virtue of 
Letters Patent granted according to this Act ; out Companies previously established not 
restrained from carrying on business until Letters Patent have been granted. 

" Whereas the laws in force for the regulation of copartnerships of bankers in Eng- 
land need to be amended : Be it enacted by the Queen's most excellent Majesty, by 
and with the advice and consent of the Lords Spiritual and Temporal, and Commons, 
in this present Parliament assembled, and by the authority of the same, That it shall 
not be lawful -for any company of more than six persons to carry on the trade or busi- 
ness of bankers in England, after the passing of this Act, under anv agreement or cov- 

308 



Country Joint- Stock Banks. 

enant of copartnership made or entered into on or after the sixth day of May last 
passed, unless by virtue of letters patent to be granted by her Majesty according to the 
provisions of this Act ; but nothing herein contained shall be construed to restrain any 
such company established before the said sixth day of May, for the purpose of carrying 
on the said trade or business of bankers in England, from continuing to carry on the 
same trade and business as legally as they might have done before the passing of this 
Act, until letters patent shall have been granted to them severally on their application, 
as hereinafter provided, to be made subject to the provisions of this Act. 

Company to Petition for a CJiarter. 

" II. And be it enacted, That before beginning to exercise the said trade or business 
every such company shall present a petition to her Majesty in council, praying that 
her Majesty will be graciously pleased to grant to them letters patent under this Act ; 
and every such petition shall be signed by seven at least of the said company, and shall 
set forth the following particulars ; that is to say, — 

" First, The names and additions of all the partners of the company, and the name 
of the street, square, or other place, where each of the said partners reside. 

" Second, The proposed name of the bank. 

" Third, The name of the street, square, or other local description of the place or 
places where the business of the bank is to be carried on. 

" Fourth, The proposed amount of the capital stock, not being in any case less than 
one hundred thousand pounds, and the means by which it is to be raised. 

"Fifth, The amount of capital stock then paid up, and where and how invested. 

" Sixth, The proposed number of shares in the business. 

" Seventh, The amount of each share, not being less than one hundred pounds each. 

Charter to be granted on Report of Board of Trade. 
" III. And be it enacted, That every such petition shall be referred by her Majesty 
to the Committee of Privy Council for Trade and Plantations ; and so soon as the 
Lords of the said committee shall have reported to her Majesty that the provisions ofi 
this Act have been complied with on the part of the said company, it shall thereupon 
be lawful for her Majesty, if her Majesty shall so think fit, with the advice of her Privy 
Council, to grant the said letters patent. 

Deed of Settlement. 

" IV. And be it enacted, That the deed of partnership of every such banking com- 
pany shall be prepared according to a form to be approved by the Lords of the said 
committee, and shall, in addition to any other provisions which may be contained 
therein, contain specific provisions for the following purposes ; that is to say, — 

" First, For holding ordinary general meetings of the company once at least in every 
year, at an appointed time and place. 

" Second, For holding extraordinary general meetings of the company, upon the 
requisition of nine shareholders or more, having in the whole at least twenty-one 
shares in the partnership business. 

" Third, For the management of the affairs of the company, and the election and 
qualification of the directors. 

" Fourth, For the retirement of at least one fourth of the directors yearly, and for 
preventing the reelection of the retiring directors for at least twelve calendar months. 

" Fifth, For preventing the company from purchasing any shares, or making ad- 
vances of money, or securities for money, to any person on the security of a share or 
shares in the partnership business. 

" Sixth, For the publication of the assets and liabilities of the company once at least 
in every calendar month. 

" Seventh, For the yearly audit of the accounts of the company, by two or more au- 
ditors, chosen at a general meeting of the shareholders, and not being directors at the 
time. 

" Eighth, For the yearly communication of the auditors' report, and of a balance- 
sheet, and profit and loss account, to every shareholder. 

" Ninth, For the appointment of a manager, or other officer to perform the duties of 
manager. 

" And such deed, executed by the holders of at least one half of the shares in the 

309 



A Treatise on Banking. 

said business, on which not less than ten pounds on each such share of one hundred 
pounds, and in proportion for every share of larger amount, shall have been then paid 
up, shall be annexed to the petition ; and the provisions of such deed, with such others 
as to her Majesty shall seem fit, shall be set forth in the letters patent. 

No Company to commence Business till Deed executed and all the Shares subscribed for, and 
at least Half the Amount paid up. 

" V. Provided always, and be it enacted, That it shall not be lawful for any such 
company to commence business until all the shares shall have been subscribed for, and 
until the deed of partnership shall have been executed, personally or by some person 
duly authorized by warrant of attorney to execute the same on behalf of such holder or 
holders, by the holders of all the shares in the said business, and until a sum of not less 
than one half of the amount of each share shall have been paid up in respect of each 
such share ; and it shall not be lawful for the company to repay any part of the sum 
so paid up without leave ofthe Lords of the said committee. 

Company to be Incorporated. 

" VI. And be it enacted, That it shall be lawful for her Majesty, in and by such let- 
ters patent, to grant that the persons by whom the said deed of partnership shall have 
been executed, and all other persons who shall thereafter become shareholders in the 
said banking business, their executors, administrators, successors, and assigns respec- 
tively, shall be one body politic and corporate, by such name as shall be given to them 
in and by the said letters patent, for the purpose of carrying on the said banking busi- 
ness, and by that name shall have perpetual succession and a common seal, and shall 
have power to purchase and hold lands of such annual value as shall be expressed in 
such letters patent ; and such letters patent shall be granted for a term of years, not 
exceeding twenty years, and may be made subject to such other provisions and stipu- 
lations as to her Majesty may seem fit. 

Incorporation not to limit the Liability of the Shareholders. 

" VII. Provided always, and be it enacted, That notwithstanding such incorporation 
the several shareholders for the time being in the said banking business, and those who 
shall have been shareholders therein, and their several executors, administrators, suc- 
cessors, and assigns, shall be and continue liable for all the dealings, covenants, and 
undertakings of the said company, subject to the provisions hereinafter contained, as 
fully as. if the said company were not incorporated." 

By the 48th section of this Act, " Every company of more than six 
persons carrying on the trade or business of bankers in England, shall be 
deemed a trading company within the provisions of an Act passed in this 
session of Parliament, entitled ; An Act for facilitating the winding up the 
affairs of Joint-stock Companies unable to meet their pecuniary engage- 
ments.' " 

This Act is the 7 and 8 Vict. cap. Ill (September, 1844), and it ren- 
ders all joint-stock companies subject to the law of bankruptcy. No joint- 
stock bank has ever been made bankrupt. It is presumed, from the num- 
ber of regulations prescribed by the Act, that the process of bankruptcy 
would, in the case of a banking company, be both tedious and expen- 
sive. 

In the year 1848 an Act was passed (11 and 12 Vict. cap. 45), to 
amend the Acts for facilitating the winding-up the affairs of joint-stock 
companies unable to meet their pecuniary engagements, and also to facil- 
itate the dissolution and winding-up of joint-stock companies and other 
partnerships. The legal title of this Act, to distinguish it from other Acts 
is " The Joint-stock Companies' Winding-up Act, 1848." 

The object of this Act is to enable the directors of an insolvent com- 

310 



The Banks of Scotland. 

pany to compel the shareholders individually to pay their proportion of the 
loss. There was previously much difficulty in doing this. If all the nom- 
inal capital had been called up, the directors could make no further calls. 
In cases where they had the power of making calls these calls could not 
be enforced without an appeal to the Court of Chancery. It was therefore 
customary for the directors to " confess judgment " to some creditor, and 
this creditor brought actions against the refractory shareholders for the 
whole amount of his claim, but granted a release on receiving that sum 
which the shareholders ought justly to pay, in proportion to their shares. 

By this Act the directors or any shareholder of a company that has 
stopped payment, may present a petition to the Lord Chancellor, or to the 
Master of the Rolls, in a summary way, for the dissolution and winding-up 
of the company. If the order be granted, it is referred to a Master' in 
Chancery, who will appoint an official manager to wind up the affairs of 
the company. The official manager is to collect all the debts due to the 
company, and to pay all its creditors. With the consent of the Master he 
can make calls on the shareholders, for such amounts, and payable at 
such times, as the Master may direct. The company is to sue and be 
sued in the name of the official manager. The object of the Act, how- 
ever, is rather to settle disputes and claims of the shareholders among 
themselves, than to protect them against their creditors. Clause 58 has 
an especial provision with reference to this subject : — 

Act not to affect Rights of Creditors nor existing Contracts. 

" LVIII. Provided always, and be it enacted, That, except as is by this Act ex- 
pressly provided, nothing in this Act contained, nor any petition or order under the 
same for the dissolution and winding up or for the winding up of any company, shall 
extend or enlarge, diminish, prejudice, or in any wise alter or affect the rights or reme- 
dies of creditors, or other persons not being contributories of the company, or the rights 
or remedies of creditors being also contributories, but being creditors of the company 
upon a distinct and independent account, whether against the company or against any 
of the contributories of the same, nor the rights or remedies of the company against 
any contributories or other persons, nor shall alter or affect any contracts or engage- 
ments entered into by or with the company, or any person acting on behalf of the 
same, previously to any such petition, nor any actions, suits, or other proceedings 
pending at the date of such petition." 



Section VI. -THE BANKS OF SCOTLAND. 

In this Section we shall consider the following topics : — 

I. The Law of Scotland with reference to Banking. 

II. The Existing Banks of Scotland. 

m. A Comparison between the Banks of Scotland and those of England. 

IV. The Laws of the Currency with reference to Scotland. 

V. Those operations of the Scotch Banks that refer to the System of Cash Credits, 

Interest on Deposits, Remittances to India, and the Settlement of the Ex 
changes. 

VI. The Exchange Banks and Exchange Companies 

V 311 



A Treatise on Banking. 

I. — The Law of Scotland with Reference to Banking. 

The general provisions of the law of Scotland bearing upon this sub- 
ject, are calculated to promote the solidity of banking establishments. 

1. There is no limitation to the number of partners. 

2. The private fortune of every partner is answerable for the debts of 
the bank. 

3. Land, as well as other property, may he attached for debt. 

4. In Scotland all land is registered; so it is easy for any indi- 
vidual, by referring to the records, to ascertain what landed property is 
possessed by the partners of the bank, and also whether or not it be mort- 
gaged. The following is the language of the Report of the Committee of 
the House of Commons, appointed in 1826 to consider the expediency of 
abolishing all notes under £ 5 : — 

" There is no limitation upon the number of partners of which a banking company 
may consist ; and, excepting in the case of the Bank of Scotland and the two char- 
tered banks, which have very considerable capitals, the partners of all banking compa- 
nies are bound jointly and severally, so that each partner is liable to the whole extent 
of his fortune for the whole debts of the company. 

" A creditor in Scotland is empowered to attach the real and portable, as well as the 
personal estate of his debtor, for payment of personal debts, among which may be 
classed debts due by bills and promissory notes ; and recourse may be had for the pro- 
curing payment to each description of property at the same time. Execution is not 
confined to the real property of a debtor merely during his life, but proceeds with equal 
effect upon that property after his decease. 

" The law relating to the establishment of records gives ready means of procuring 
information with respect to the real and heritable estate of which any person in Scot- 
land may be possessed. No purchase of an estate in that country is secure until the 
seisine (that is, the instrument certifying that actual delivery has been given) is put on 
record; nor is any mortgage effectual until the deed is in like manner recorded. 
. " In the case of conflicting pecuniary claims upon real property, the preference is 
not regulated by the date of the transaction, but by the date of its record. These rec- 
ords are accessible to all persons ; and thus the public can with ease ascertain the 
effective means which a banking company possesses of discharging its obligations, and 
the partners in that company are enabled to determine with tolerable accuracy the de- 
gree of risk and responsibility to which the private property of each is exposed. 

" There are other provisions of the law of Scotland, which it is not necessary mi- 
nutely to detail, the general tendency of which is the same with those above men- 
tioned." 

The following Acts of Parliament have been passed in reference to 
banking in Scotland : — 

" The first notice of banking in Scotland which occurs in the statute-book, is an act 
of King William the Third, passed in the year 1695, under which the Bank of Scot- 
land was established. By this Act an exclusive privilege of banking was conferred 
upon that bank, it being provided ' that for the period of twenty years from the 17th 
July, 1695, it should not be lawful for any other person to set up a distinct company 
or bank within the kingdom of Scotland, besides those persons in whose favor this Act 
was granted.' No renewal of the exclusive privilege took place after the expiration 
of the twenty-one years. 

" The Bank of Scotland first issued notes of 20s. in the year 1704; but the amount 
of notes in circulation previous to the Union was very limited. 

" The Bank of Scotland continued the only bank from the date of its establishment 
in 1695, to the year 1727. 

" In that year a charter of incorporation was granted to certain individuals named 
therein, for carrying on the business of banking under the name of the Royal Bank ; 

312 



Scotch Banking. 

and subsequent charters were granted to this establishment, enlarging the capital, 
which now amounts to one million and a half. 

"An Act passed in the year 1765 is the first and most important Act of the Legis- 
lature which regulates the issue of promissory notes in Scotland. 

" It appears from its preamble, that a practice had prevailed in Scotland of issuing 
notes which circulated as specie, and which were made payable to the bearer on de- 
mand, or payable at the option of the issuer at the end of six months, with a sum 
equal to the legal interest from the demand to that time. 

"The Act of 1765 prohibits the issue of notes in which such an option as that be- 
fore mentioned is reserved to the issuer. It requires that all notes of the nature of a 
bank-note, and circulating like specie, should be paid on demand ; and prohibits the 
issue of any promissory note of a sum less than 20s. 

" With respect to the issue of promissory notes in England, an Act was passed in 
1775, prohibiting the issue of any such notes under the sum of 20s. And in the year 
1777, restraints were imposed by law on the issues of notes between the sum of 20s. 
and £ 5, which were equivalent to the prohibition of such notes circulating as specie. 

"In the year 1797, when the restrictions as to payments in cash were imposed upon 
the Bank of England, the provisions of the Act of 1777, with regard to the issue of 
notes between 20s. and £ 5 were suspended. By an Act passed in the third year of 
his present Majesty, the suspension was continued until the 5th of January, 1833 ; but 
now stands limited by an Act of the present session to April 5, 1829." 

" The general result of the laws regulating the paper currency in the two countries 
in this : — 

" That in Scotland, the issue of promissory notes payable to bearer on demand for a 
sum of not less than 20s. has been at all times permitted by law, nor has any Act been 
passed limiting the period for which such issue shall continue legal in that country. 
In England, the issue of promissory notes for a less sum than £ 5 was prohibited 
by law from the year 1772 to the period of the bank restriction in 1797. It has been 
permitted since 1797; and the permission will cease, as the law at present stands, in 
April, 1829." 

The Act which now regulates the issue of bank-notes in Scotland is 8 
and 9 Vict. c. 38, passed in the year 1845. 

By this Act, the power of issuing notes is confined to those banks that 
issued notes in the year preceding the 1st day of May, 1845. And the 
amount to which each bank may issue is not to exceed the average 
amount of notes it had in circulation during the year ending the 1st of 
May, 1845, and the amount of gold or silver coin it may at the time have 
in possession at the head office or principal place of issue, in the propor- 
tion that the silver shall not be more than one fourth the amount of the 
gold. 

This Act was to come into operation on the 6th day of December, 
1845. After which day each banker is to make weekly returns to the 
Stamp-office of his notes in circulation, and of the gold and silver coin on 
hand ; and the averages of four weeks are to be published in the London 
Gazette, with a certificate from the commissioner as to whether the bank 
has held the amount of coin required by this Act. 

All banks, except the Bank of Scotland, the Royal Bank of Scotland, 
and the British Linen Company, are required to send to the Stamp-office, 
between the 1st and 15th days of January inclusive, the names of all 
their partners, which shall be published by the 1st day of March follow- 
ing in some newspaper circulating within each town or county respec- 
tively in which the head office or principal place of issue of such bank is 
situated. 

Bank of England notes are not to be a legal tender in Scotland. 

In the Acts of Parliament passed in 1844 and 1845 for Regulating 

313 



A Treatise on Banking. 

Banks of Issue in England and in Scotland, we may observe the follow- 
ing differences : — 

1. The maximum of the circulation in England is the average of the 
twelve weeks ending the 27th of April, 1844. The maximum in Scot- 
land is the average of the year ending the 1st day of May, 1845. 

2. The English banks are not, under any circumstances, allowed to ex- 
ceed the fixed limit. The Scotch banks are allowed to exceed their limit, 
provided they hold in their coffers at the head office an amount of gold 
and silver equal to such excess. 

3. In England, should two joint-stock banks of issue effect a junction, 
the circulation of one of them would be forfeited, and the united bank 
could issue only to the amount which the other bank had previously is- 
sued. In Scotland, the united bank is allowed to issue to the amount of 
the two circulations added together. There is no express provision in the 
English Act with reference to the junction of two joint-stock banks. We 
consider that only one of the banks would lose its issue, provided the 
continuing bank retained its original title, so as not to create a new bank. 
But if by the union a new bank should be formed, then both the banks 
would lose their issues. In the same way, we think that the union of an 
issuing and a non-issuing bank would cause no change in the issue. But 
then the new bank must retain the title of the old issuing bank. Its right 
of issue would not be affected by taking new directors or new share- 
holders. 

4. In Scotland, notes under £ 5 are still permitted. In England, notes 
under £ 5 are still prohibited. 



II. — The Existing Banks of Scotland. 

The following Table, which I constructed from the parliamentary evi- 
dence of 1826, contains an account of the number of the banks in Scot- 
land, the name of the firm or bank, date of its establishment, place of the 
head office, number of branches, number of partners, and the name of 
the London agents : — 



Names of Firms or Banka. Date. Head Office. 

1. Bank of Scotland, . . . 1695 Edinburgh 

2. Royal Bank of Scotland, . 1727 Ditto, 

3. British Linen Company, . . 1746 Ditto, 

4. Aberdeen Banking Company, 1767 Aberdeen, 

5. Aberdeen Town and County 

Bank, .... 1825 

6 Arbroath Banking Company, 1825 

7. Carrick & Co., or Ship Bank, . 1749 

8. Commercial Banking Company 

of Scotland, .... 1810 Edinburgh, 

9. Commercial Banking Company, 1778 Aberdeen, 

10. Dundee Banking Company, . 1777 Dundee, 

11. Dundee New Bank, . . . 1802 Ditto, 

12. Dundee Commercial Bank, . 1825 Ditto, 

13. Dundee Union Bank, . . 1809 Ditto, 

14. Exchange and Deposit Bank, — Edinburgh, 

15. Falkirk Banking C mpany, . 1787 Falkirk, 

16. Fife Banking Company, . 1802 Cupar, Fife, 

314 



No. of No. of 

Branches. Partn. 

16 chart. 

1 ditto, 

27 ditto, 



6 



SO 



Ditto, 4 446 

Arbroath, 2 112 

Glasgow, none, 3 



31 



none, 



none, 
4 



521 
15 
61 
6 



London Agents. 
Coutts & Co. 
Bank England & ditto. 
Smith, Payne, & Co. 
Glyn & Co. 

Jones, Loyd, & Co. 

Glyn & Co. 

Smith, Payne, & Co. 

Jones, Loyd, & Co. 
Kinloch & Sons. 
Kinloch & Sons. 
Ransom & Co. 
Glyn & Co. 
Glyn & Co 

Remington & Co. 
(Discontinued 1825.) 



The Banks of Scotland. 



Names of Finns or Banks. Date. 



Head Office. D No \ of £ ' of 
Branches. Partn. 



17. Greenock Banking Company, 

18. Glasgow Banking Company, . 

19. Hunters & Co., . 

20. Leith Banking Company, . 

21. National Bank of Scotland, . 

22. Montrose Bank, 

23. Paisley Banking Company, . 

24. Paisley Union Bank, 

25. Perth Banking Company, 

26. Perth Union Bank, . 

27. Ramsay's, Bonar's, & Co., . 
23. Renfrewshire Banking Company, 

29. Shetland Bank, 

30. Sir William Forbes & Co., . 

31. Stirling Banking Company, 

32. Thistle Bank, 



17S5 

1809 

1773 
1792 
1825 
1814 
1783 
1788 
1766 
1810 
1738 
1802 



1777 
1761 



Greenock, 

Glasgow, 

Ayr, 

Leith, 

Edinburgh, 

Montrose, 

Paisley, 

Ditto, 

Perth, 

Ditto, 

Edinburgh, 

Greenock, 

Lerwick, 

Edinburgh, 

Stirling, 

Glasgow, 



19 

8 

15 

1,238 

97 

6 

4 

147 

69 

8 

6 

4 

7 

7 

6 



London Agents. 

Kay & Co. 
5 Ransom & Co., and 
I Glyn & Co. 

Henries & Co. 

Barnett & Co. 

Glyn & Co. 

Barclay & Co. 

Smith, Payne, & Co. 

Glyn & Co. 

Barclay & Co. 

Remington & Co. 

Coutts & Co. 

Kay & Co. 

Barclay & Co. 

(Barclay) (Coutts). 

Kinloch & Sons. 

Smith, Payne, & Co. 



Private Banking Companies, who do not Issue Notes. 
Thomas Kinnear & Sons, . 1748 Edinburgh, none, — Smith, Payne, & Co. 



Donald Smith & Co., . 
Robert Allen & Son, 
Alexander Allan & Co., 



1773 



1776 



Ditto, 
Ditto, 
Ditto, 



none, 
none, 
none, 
none, 



Glyn & Co. 
Barclay & Co. 
Barclay & Co. 



Since the year 1826 the following banks have been formed in Scot- 
land : — 

Formed. 
. April, 1830. 

Nov., 1831. 
, Oct., 1832. 

April, 1834. 
. Oct., 1836. 

May, 1838. 
. June, 1838. 

Dec, 1838. 

Dec, 1838. 

Feb., 1839. 
, Mav, 1839. 

Oct", 1840. 
1844. 



The Glasgow Union Bank, 
The Ayrshire Banking Company, at Ayr, 
The Western Bank of Scotland," at Glasgow, 
The Central Bank of Scotland, at Perth, 
The North of Scotland Bank, at Aberdeen, 
The Clydesdale Bank, at Glasgow. 
The Southern Bank of Scotland, at Dumfries, 
The Eastern Bank of Scotland, at Dundee, . 
The Edinburgh and Leith Bank, 
The Caledonian Bank, at Inverness, 
The City of Glasgow Bank, 
Glasgow Joint-Stock Bank, .... 
The North British Bank, at Glasgow, (not a bank of issue, 
The Exchange Bank of Scotland, at Edinburgh, (not a bank 
issue), 




of 



1845, 



At present, the following are the only banks of issue in Scotland : — 

A Table exhibiting the Capital and other particxdars of the Banks of Issue in 
Scotland, with the Price of their Shares, as publicly quoted in December, 1848. 
(From tfte "Edinburgh Almanac") 



Insti- 
tuted. 



Name. 



1695. Bank of Scotland, . 645 
1727. Royal Bank, . . 917 
1746. British Linen Company, 233 
1810. Commercial Bank, . 565 
1825. National Bank, . 1,456 
1829. Union Bank of Scot- 
land, ... 592 





aa Paid-up 


Di 


vidend. 


Share 


Price. 




es> Capital. 


Rate. 


Payable. 


Paid. 




£ 






£ 


£ s. d. 


31 


1.000.000 


7 


April and Oct. 


100 


162 


6 


2 ; 000,000 


5 


Jan. and July. 


100 


118 


43 


500,000 


8 


June and Dec. 


100 


196 


47 


600,000 


7 


Jan. and July. 


100 


151 


33 


1,000,000 


6* 


Jan. and July. 


10 


13 5 C 


31 


1,000,000 


8 


June and Dec. 


50 


77 



315 



A Treatise on Banking. 



Insti- Namk Part " Branches Paid ' u P 
tuted. WAMB ' ners. • tJranclie3 - Capital. 


Dividend. 
Rate. Payable. 


Share 
Paid. 


Price. 


1838. Edinburgh and Glasgow 




£ 






£ 


£ a. d. 


Bank, . . 1,500 


20 


1,000,000 


6 


Feb. and Aug. 


5 


5 11 


1767 Aberdeen Banking 














Company, . . 477 


16 


200,000 


6 


1 May and 1 Nov. 


5 


3 12 6 


1825. Aberdeen Town and 














County Bank, . 509 


12 


250,000 


n 


March and Sept. 


5 


6 4 


1836. North of Scotland 














Banking Company, 1,650 


33 


380,955 


4 


May and Nov. 


5 


3 5 


1763. Dundee Banking Com- 














pany, ... 61 


1 


60,000 


8J 


March, 


60 


80 


1838. Eastern Bank of Scot- 














land, ... 460 


3 


124,020 


6 


May and Nov. 


10 


9 10 


1832. Western Bank of Scot- 














land, . . . 1,167 


60 


1,708,450 


8 


July and Dec. 


50 


70 


838. Clydesdale Banking 














Company, . . 1,355 


12 


807,3SO 


6* 


Feb. and Aug. 


10 


12 4 6 


1839. City of Glasgow Bank, 1,063 


13 


1,000,000 


6 


Feb. and Aug. 


10 


10 17 6 


1838. Caledonian Banking 














Company, . . 903 


8 


125 : 000 


8 


August, 


2* 


4 


1766. Perth Banking Company, 182 


3 


100,050 


8 


July, 


100 


150 


1834. Central Bank of Scot- 














land, ... 405 


5 

£ 


56,275 


8 


September, 


25 


37 


14,235 


11,912,130 





Thus we find that, although there were thirty-two banks of issue exist- 
ing in Scotland in the year 1826, and twelve more banks of issue have 
since been formed, yet the present number of issuing banks is only eigh- 
teen. It may also be observed, that out of the four non-issuing private 
banks in Edinburgh, only one remains. It will be interesting to trace the 
changes that have taken place in the Scottish banks since the year 1826. 
In the following Table the figures refer to the numbers in the Table at 
pp. 314, 315. 

Changes in Scottish Banks since 1826. 
No. 

6. Arbroath Banking Company . 

9. Commercial Bank of Aberdeen • 

10. Dundee Banking Company ) • rt - rio/ j 

11. Dundee New Bank . . p oinea • 

12. Dundee Commercial Bank . 



( Merged in Commercial Bank of 
I Scotland. 

C Merged in National Bank of Scot- 
' I land. 

Are now Dundee Bank. 



13. Dundee Union Bank 

14. Exchange and Deposit Bank 

15. Falkirk Banking Company 

16. Fife Banking Company 

17. Greenock Banking Company . 

SSSTJ*—- • • 

19. Hunters & Co., Ayr. 

20. Leith Bank .... 

22. Montrose Bank 

23. Paisley Bank 

24. Paisley Union Bank 

26. Perth Union Bank 

27 . Ramsay's, Bonar's, & Company 



316 



C Merged in Eastern Bank of Scot- 

* I land. 

( Merged in Western Bank of Scot- 
\ land. 

• Failed. 
Wound up. 

. Failed ; paid in full. 

Merged in Western Bank. 

Afterwards joined Union Bank of 
Scotland. 

Ditto. 
. Failed. 

Wound up. 
. Merged in British Linen Company 

Merged in Union Bank of Scotland 
. Wound up. 

Ditto. 



Failures of Scotch Banks. 

28 Renfrewshire Banking Company . . . Failed. 

29. Shetland Bank Ditto. 

30. Sir W. Forbes, J. Hunter, & Co. . . Joined with Union Bank. 

31. Stirling Bank Suspended ; paid in full. 

32. Thistle Bank Merged in Union Bank. 

Non-Issuing Private Banks. 

Thomas Kinnear & Sons ) C United under the firm of Kinnears, 

Donald Smith & Co. > * * '{ Smiths, & Co., and afterwards failed. 

R. Allan & Son Failed. 

Alexander Allan & Co Continue in business as formerly. 



Of the Banks formed since 1826 : — 



The Glasgow Union Bank joined, in 1 844, the private bank, at Edinburgh, of Sir 
William Forbes & Co. ; and afterwards took the title of the Union Bank of Scot- 
land. 

The Edinburgh and Leith Bank, and 

The Glasgow Joint-stock Bank, united in 1844, and formed a new bank, called the 
Edinburgh and Glasgow Bank. 

The Ayrshire Banking Company merged in the "Western Bank of Scotland. 

The Southern Bank of Scotland became, in 1842, the Dumfries Branch of the Edin- 
burgh and Leith Bank. 

From this statement it will appear that the Union Bank of Scotland em- 
braces the following banks : — 

1. The Glasgow Union Bank. Formed since 1826. 

2. The Paisley Union Bank. No. 23 in the first table. 

3. Glasgow Banking Company. No. 18. 

4. Carrick & Company, or Ship Bank, Glasgow. No. 7. 

5. Sir William Forbes & Co. No. 30. 

6. Thistle Bank, Glasgow. No. 32. 

7. Hunters & Co., Ayr. No. 19. 

The Western Bank of Scotland also embraces several original 
banks : — 

1. The Western Bank of Scotland. Formed since 1826. 

2. The Dundee Union Bank. No. 13. 

3. Greenock Banking Company. No. 17. 

4. The Ayrshire Banking Company. Formed since 1826. 

The Edinburgh and Glasgow Bank is formed of three banks : — 

The Edinburgh and Leith Bank. 

The Southern Bank of Scotland, at Dumfries. 

The Glasgow Joint-Stock Bank. 

The banks that have failed or wound up since 1826 are the follow- 
ing:— 

1. Exchange and Deposit Bank, Edinburgh. No. 14. 

2. Fife Banking Company. In 1825, No. 16. 

3. Leith Banking Company. No. 20. 

4. Renfrewshire Banking Company, Greenock. No. 28. 

5. Montrose Bank. No. 22. 

6 Perth Union Bank. No 26 

7 Ramsay's, Bonar's, & Co., Edinburgh. No. 27. 

8. Shetland Bank. No. 29. 

9. Stirling Bank. No. 31. 

317 



A Treatise on Banking. 

From this account it will appear that out of the thirty-two banks con- 
tained in my list of 1826 only nine remain. These are the following : — 

1 . The Bank of Scotland. No. 1 . 

2. The Royal Bank of Scotland. No. 2. 

3. The British Linen Company. No. 3. 

4. The Aberdeen Banking Company. No. 4. 

5. Aberdeen Town & County Bank. No. 5. 

6. Commercial Bank of Scotland. No. 8. 

7. Dundee Banking Company. No. 10 and No. 11. 

8. National Bank of Scotland. No. 21. 

9. Perth Banking Company. No. 25. 

Most of the banks that have ceased to exist were banks having only a 
few partners, and their capital was unknown. The banks that have since 
been formed have many partners, and generally a large amount of capi- 
tal. It was probably in consequence of the greater strength of the new 
banks that the old ones found it expedient to discontinue business. The 
change has doubtless been for the advantage of the public, and it has 
taken place without being attended with any inconvenience or excitement. 
Indeed, we think that in all cases where the law leaves banking free, the 
effect is to reduce the number of banks. We are aware that the general 
impression is the reverse. 

" The argument presumes, that in case of free banking the number of 
banks would be very great. Are we justified in supposing that this would 
be the case ? Theory exclaims, ' Yes ' ; experience whispers, 4 No.' The 
numerous banks in America are not the result of free trade, but are the re- 
sult of the Acts of the Legislature. The State Legislatures have thought 
proper to give a large number of charters, and of course there is a large 
number of banks. Had the charters been fewer, and required higher paid- 
up capitals, the banks would have been larger and more respectable. The 
number of banks in England, too, have been the result of the interference 
of the Legislature. In the renewal of the charter of the Bank of England 
in 1708 it was enacted, that no other bank having more than six partners 
should have the privilege of issuing notes. As the growing trade and 
wealth of the country required banks of some sort, and as banks having 
more than six partners could not be formed, a great number of banks, 
each not having more than six partners, rose into existence as they were 
required by the increasing trade and wealth of the country. Hence, in- 
stead of having a small number of large banks, we have had a large num- 
ber of small banks. 

" If we look to Scotland, where banking has been free, we find that the 
total number of private and joint-stock banks is only twenty-eight.* Bank- 
ing has been free beyond fifty miles from Dublin for the last fifteen years, 
yet throughout that district there are only five banks of issue, with the ex- 
ception of the Bank of Ireland. In England, where there has been, as 
we are told, a frenzy in their favor, the joint-stock banks of issue are 
only ninety-one,f and probably they would have been less numerous had 

* This was written in the year 1840. The present reduced number of banks strength- 
ens our argument. 
t At present, sixty-six. 

318 



Failures of Scotch Banks. 

not the law excluded them from London. The capital which has been 
embarked in a number of small local banks would have been invested in 
large London establishments, and the place of the local banks would have 
been occupied by branches of the London banks. From these facts, it 
seems fair to infer that some of the small joint-stock banks, and many of 
the private banks, will in the course of the next twenty years be merged 
in larger establishments. The supposition that unlimited freedom of bank- 
ing would lead to the establishment of an inconvenient multitude of banks 
is wholly unsupported by the testimony of experience." ( Currency and 
Banking, by J. W. Gilbart.) 

The existing banks in Scotland are thus distributed : — 

Edinburgh is the head-quarters of the following banking institutions : — 

1. The Bank of Scotland. 4. The Commercial Bank of Scotland. 

2. The Royal Bank of Scotland. 5. The National Bank of Scotland. 

3. The British Linen Company. 6. The Edinburgh and Glasgow Bank. 

All these banks issue notes, and have branches. The first five have 
charters. The charters of No. 4 and No. 5 are comparatively of recent 
date, and do not limit the liability of the shareholders. 

The Exchange Bank of Scotland : — This bank has a charter under 
the Act of 1844 (7 & 8 Vict. c. 32). It does not issue notes, and has no 
branches. 

Glasgow is the head-quarters of the following banks : — 

1. The Union Bank of Scotland. 3. The Clydesdale Bank. 

2. The Western Bank of Scotland. 4. The City of Glasgow Bank. 

The North British Bank, at Glasgow, does not issue notes, and has no 
branches. Its capital has been reduced from .£233,270 to £ 156,520 by 
the purchase of its own shares. These purchases have been carried to the 
" Reserved Fund Account." 

Dundee is the head-quarters of three banks, Aberdeen of three, Perth 
of two, and Inverness of one. All the other places in Scotland have only 
branches. Branches of other banks are also established in Edinburgh, 
Glasgow, Dundee, Aberdeen, Perth, and Inverness, besides the banks 
whose head offices are in those places. 

III. — A Comparison between the Banks of Scotland and those of Eng- 
land. 

The differences between the English and the Scotch banks are the fol- 
lowing : — 

1. The Scotch banks are all joint-stock banks. In England there is a 
mixture of joint-stock and private banks. 

2. The Scotch banks are nearly all banks of issue. In England there 
are many, both private and joint-stock banks, that are not banks of issue. 

3. The Scotch banks generally have branches. In England most of 
the private banks, and some of the joint-stock banks, have no branches. 

4. The Scotch banks universally grant interest on the balance of cur- 
rent accounts, — a practice not universally adopted in England, especially 
in London. 

319 



A Treatise on Banking. 

5. The mode of making advances by way of " cash credit " is general 
in Scotland, but very rare in England. 

We may also observe some other differences, chiefly of a business 
character, which have an important bearing on the interest of the commu- 
nity. 

1. The banks of Scotland have generally a large paid-up capital. 

" Two great errors appear to have been committed in the formation of joint-stock 
banks in England, and, until these are remedied, such establishments can hardly ex- 
pect to reach a higher degree of importance or credit than is attainable by a wealthy 
private bank. These evils are, in the first place, too small a capital relatively to the 
extent of business undertaken ; and, in the next place, the circumstance of the is- 
sues of the joint-stock banks being left uncontrolled by any effective system of ex- 
change." 

l; The advantage of a small capital in banking is, that it enables the establishment, if 
at all successful in business, to pay a large dividend. The profits of banking depend, 
in a great measure, on the amount of deposits and circulation, and according as 
these are great or small compared with the extent of the capital, will the company be 
enabled to divide a larger or smaller dividend. It therefore becomes the obvious pol 
icy of those establishments, the managers of which conceive that the success of a bank 
is proved by the early payment of a high dividend, to keep the capital of the company 
within the narrowest possible limits. This system has been carried to the utmost ex- 
treme in England ; and hence, although large dividends have been paid to the share- 
holders, there has been no corresponding increase of confidence on the part of the 
public. 

" The Scotch banks, on the other hand, have pursued a directly opposite course. 
Their object has been to secure public confidence by the extent of their capital, and 
they have continued to pay moderate dividends to their shareholders, until justified in 
augmenting them by years of success, and a large accumulated sinking-fund. So well, 
indeed, is this system understood, and so completely has it attained its purposes, that 
the slighest appearance of improvidence displayed by a Scotch joint-stock bank, in fix- 
ing the amount of its dividend, has been invariably attended with a decrease of the pub- 
lic confidence in the stock of the establishment. In this manner public confidence has 
been secured, the value of Scotch bank stock has risen in the market, and the share- 
holders have received their extra profits as a bonus, or in the increased value of their 
own shares. Thus, instead of being looked upon as establishments aiming at the 
ephemeral advantage of making a large dividend, for stock-jobbing or temporary pur- 
poses, our banks have almost invariably assumed the character of permanent national 
establishments, identified with the prosperity of the country, and, by means of their 
small-note circulation, conferring benefit on, as well as obtaining the confidence of, ev- 
ery class in the community." (Letter to James William Gilbart, Esq., on the Eelative 
Merits of the English and Scotch Banking Systems ; with Practical Suggestions for 
the Consolidation of the English Joint-stock Banking Interest By Robert Bell. — Mr. 
Bell is now manager of the City of Glasgow Bank, at Edinburgh ; and was examined 
in 1848, as a witness before the Committee of the House of Commons on Commercial 
Distress.) 

The eighteen banks in Scotland have a paid-up capital of £ 11,912,130, 
making an average to each bank of £ 661,785. The number of places of 
issue (banks and branches) is 403, making an average of capital to each 
place of £ 29,558. The authorized circulation for Scotland is £ 3,087,209, 
making an average to each place of issue of £ 7,660. 

The ninety-nine joint-stock banks of England have a paid-up capital of 
about £ 14,000,000, making an average to each bank of about £ 140,000. 
The joint-stock banks and branches in England are 513, making an 
average of capital to each place of about .£27,290. 

The sixty-six joint-stock banks of issue in England have a paid-up cap- 

320 



Comparative View. 

ftal of about £ 6,000,000, making an average capital of about £ 91,000. 
The number of places of issue, banks and branches, is 407, making an 
average of capital to each place of about £ 15,000. The authorized is- 
sue is £ 3,409,987, making an average of about £ 8,378 to each place :>f 
issue. 

There are 184 private country banks in England, issuing notes at 375 
places. Their authorized issue is .£4,822,488, making an average to 
each bank of £ 26,200, and of £ 12,860 to each place of issue. The 
capital of these banks is unknown. 

2. In operating on his current account, it is not the general practice in 
Scotland for a customer to draw cheques on the bank for his individual 
payments, nor to accept bills payable at the bank. If he has to make 
twenty payments in the course of the day, he will go to the bank in the 
morning, and draw out in one sum a sufficient amount of notes to make 
all these payments. On the other hand, if a customer should receive 
money from twenty different people in the course of the day, he will 
not receive cheques, as there are none in circulation, but bank notes, 
which at the close of the day he will pay in one sum into the bank. In 
England, all these receipts and payments would be made in cheques, each 
having probably odd shillings and pence. From this cause, the trouble 
and expense to a bank of conducting a current account is much greater in 
England than in Scotland. 

A few years ago an attempt was made to form a bank, to be called the 
Dunedin Bank of Scotland. One of the advantages it held out to the 
public was the adoption of the English system of drawing cheques for 
individual payments. The advantages of this system are pointed out in 
the following terms : — 

" Another prominent feature of the proposed institution is the proposal to take in 
and pay out for customers 'any sum, however small.' Though troublesome to the 
bank, such a measure must be of incalculable convenience to parties dealing with it. 
Here, again, there is nothing absolutely new, as such a practice must, more or less, ex- 
ist wherever there are cash accounts, forming, as it does, the essential element of 
these transactions. In the Dunedin Bank it is intended to extend the principle to its 
widest limit ; in which case only its fullest benefits can be felt. Most banks are un- 
willing to arrange transactions of trifling amount, and, in consequence, their customers 
cannot follow up any determinate method of settling their accounts in that way. 
Without a universal and indiscriminate system of payment, however inconsiderable 
they may be, it is obvious that the practice of honoring larger drafts, — and those only 
for sums of so many pounds in exact number, — the operation of settling accounts in 
this manner is at be"st of a mixed description, and does not afford the whole advantages 
to be derived from it. Were the principle adopted in its full extent, the bank would, 
in reality, become general cashier for their customers ; and the necessity of having 
money in hand for the purpose of meeting every-day expenses would be in a great 
measure superseded. A larger portion of funds would be, consequently, in deposit, 
bearing interest, and, at the same time, as ready for use as if in the coffer or pocket- 
book of its owner. By this means, likewise, a regular journal of receipt and expendi- 
ture would be carried on without the slightest trouble on the part of the individual 
concerned, who, at the end of the year, or of the periodical balancing of accounts, 
would find an authentic record of his ordinary transactions. Here, too, he would find 
the vouchers for the payments he had made ; and would be under no apprehension of 
being called upon in repetition of payment through any loss of his receipts. To in- 
sure accuracy, both in regard to small cash payments and calculations of interest, it is 
contemplated to institute a farthing column in the books of the Dunedin Bank, in or- 
der that sums may be computed with greater minuteness and precision. As much 

321 



A Treatise on Banking. 

inconvenience and trouble will be necessarily incurred by the adoption of this plan, it 
is proposed to meet the additional expense by a small tax upon the transactions them- 
selves ; and it is calculated that the trifling commission of a half-penny upon each sin- 
gle payment and entry, or 4s. 2c?. upon the hundred, will afford sufficient remuneration 
for the increase of labor. Should this fee be found too small to remunerate, or to 
guard sufficiently against the abuse of the privilege, it will, of course, be easy for the 
bank to increase the charge, — say to one penny, or more, on each transaction." 

3. The system of numerous branches leads to uniformity all over Scot- 
land in the terms on which business is transacted in the banks. 

From the small number of banks that existed for many years in Scot- 
land, and from the circumstance that the head offices of most of these 
banks were fixed at Edinburgh, it was easy for them to form arrange- 
ments among themselves for the regulation of their business. Hence 
arose a uniformity of practice among all the banks, and throughout 
the whole of Scotland. 

This uniformity of practice does not exist in England. The system 
of London banking is different from that in the country. And the bank- 
ing of one district differs from that of another district. It would be diffi- 
cult to produce any general union in England, even among the joint-stock 
banks. There is a difference in the character of their localities. Their 
head offices are too wide apart to admit of frequent personal communica- 
tion. And it may be feared that among the joint-stock banks of England 
there is not enough of that esprit du corps which is essential to the exist- 
ence of a general confederation. 

There is, however, considerable competition among the banks of Scot- 
land. This rivalry, however, does not lead to transacting business on 
lower terms. Indeed these terms are always very moderate. The dif- 
ference between the rate of interest allowed and charged is rarely more 
than one per cent. No commission is charged on current accounts ; and 
it is only recently, we believe, that commission has been charged on the 
amount (not the operations) of cash credits. Sometimes the banks at 
Glasgow, when there is a great demand for capital, have been disposed 
to grant a higher rate of interest than the banks of Edinburgh. But this 
difference has soon been arranged. The provincial banks, too, have car- 
ried on a strong opposition against the branches of the Edinburgh banks. 
The late Thomas Kinnear, Esq., when asked what had led to the discon- 
tinuing of some branches of the Bank of Scotland, replied : — 

" With respect to those that are beyond my memory, I cannot say what was the 
cause ; but those that have been given up within my recollection, in point of fact, 
were given up in consequence of the town in which that branch had originally been 
established having accumulated wealth to such a degree, that it could afford a bank- 
ing capital of its own, and that it had in point of fact established a local bank, then 
the connection of that local bank went so strongly against us by fair competition, that 
we found we could employ our capital to better purpose elsewhere, and gave up the 
branch." (Commons, 132, Kinnear.) 

4. The system of numerous branches enables the banks of Scotland to 
transfer the surplus capital of the agricultural districts to the manufactur- 
ing and commercial districts, without going through the process of re- 
discounting their bills. 

Some Scotch writers have considered it a reproach to the English 

322 



Comparative View. 

banks that they re-discount their bills, and have boasted that, with rare 
exceptions, the practice of re-discount is unknown in Scotland. The ac- 
cusation is made without due consideration. The system of branches 
makes a difference in all banking arangements. A bank in an agricul- 
tural district, say at Norwich, has a superabundance of money. A man- 
ufacturing town, say Manchester, has a demand for money. The bank 
at Norwich will send its money to a bill-broker in London. The bank at 
Manchester will send its bills to the same broker. A re-discount takes 
place. But let us suppose that the bill-brokering establishment should be- 
come the head office of a large bank, having one branch at Norwich, and 
another at Manchester. Then no re-discount will occur. The bills dis- 
counted at Manchester will never pass out of the possession of the bank. 
Nevertheless, the surplus funds at Norwich will be transferred to meet 
the wants of Manchester as effectually as before. This is an illustration 
of the branch system in Scotland. A bank at Edinburgh will have 
branches in both the agricultural and the manufacturing districts. Or a 
bank whose head office is in a manufacturing town, will have branches in 
the agricultural districts. Thus the surplus funds of Perth, Ayr, and 
Dumfries, are speedily transferred to be employed at Glasgow, Paisley, 
and Dundee. Were a bank to be established at Glasgow, without branch- 
es, it would probably have occasion for discount at certain times, as well 
as the banks at Manchester or Leeds. 

At the same time, we think this transfer of capital by means of 
branches is better than by means of re-discount. There is no occasion 
for the intermediate party, the bill-broker. The bills do not go out of the 
bank, so that men's transactions do not become known. The abuses 
connected with re-discount by fictitious bills are effectually prevented ; 
and the bank can more readily regulate its advances in accordance with its 
means. To recur to our illustration : — The bank at Norwich may lose a 
large amount of its deposits ; the bank of Manchester, knowing nothing 
of this, may continue its advances in dependence upon receiving its usual 
re-discount. The check may at length come so suddenly that the Man- 
chester bank may be placed in difficulty. Under the branch system, 
should any large amount of deposits be withdrawn from one branch, the 
bank would immediately limit its advances at the others. The advantage 
of this system on the approach of a pressure is obvious. 

5. The system of numerous branches leads to more regularity and 
uniformity in the mode of making their exchanges : — 

" The system of exchanges centres in Edinburgh. In that city a general exchange 
of the bank notes of all the banks of issue in Scotland takes place twice a week. This 
exchange is made alternately within the office, and under the superintendence of the 
Bank of Scotland and of the Royal Bank. On these exchange days, clerks from all 
the banks having establishments in Edinburgh assemble, bringing with them the notes 
•which each bank has collected, not only in Edinburgh, but, by means of their branch- 
es, all over the country ; and as the Edinburgh banks act as agents for the several 
provincial banks, and, as such, exchange or give value for their notes, the whole bank- 
ing interest of Scotland, so far as concerns the exchange of notes, is represented in 
the ' Clearing-room? 

" On these occasions a mutual exchange is made by the several clerks assembled, 
giving the notes of other banks which they hold, and taking their own in exchange. 
After this exchange of notes, a balance is struck, and each clerk hands over to the offi- 

323 



A Treatise on Banking. 

cer of the presiding bank a statement, showing the amount of the balances as between 
his own bank and each of the other establishments. The aggregate balance on this 
statement shows the result of the day's exchange as it affects each bank ; and that bal- 
ance will be for or against any given bank in the precise proportion in which its recent 
transactions have exceeded or fallen short of its emerging and available resources. 

" The ultimate balance against every bank was formerly paid by a draft on London 
at ten days' date. But this mode of settlement having been found inconvenient, and 
having on one occasion led to considerable loss, in consequence of the failure of a pri- 
vate bank in Edinburgh, a different arrangement was then made, and is now acted 
upon. According to that arrangement, every Scotch bank of issue having an estab- 
lishment in Edinburgh is bound to hold a certain quota of £1,000 exchequer bills. 
This quota is proportioned to the average circulation of the particular bank ; and with 
these exchequer bills the balances of exchange are paid, the fractional parts of £ 1,000 
being settled by £ 100 Bank of England notes or gold. 

" As the object of this system is to oblige each bank to hold a certain amount of 
tangible Government paper to meet any fluctuation and excess in its issues, the several 
banks are further bound, under the general exchange arrangement, to sell or to buy 
exchequer bills to or from each other whenever the number of bills which any one bank 
holds exceeds one third, or falls short in the same proportion, of the conventional quota. 
These purchases and sales of exchequer bills made from and to the banks reciprocally 
are settled for by the bank making the purchase, by a draft on London at five days' 
date, with a commission equivalent to the eight days which the draft has to run at the 
exchequer bill rate of interest. In order to prevent the risk of these mutual sales and 
purchases of exchequer bills being converted into stock-jobbing transactions, the pur- 
chases are made at par, and each bank holds its quota, in its own name, direct from 
Government, while the general supply of exchequer bills is kept in the circle by being 
specially marked as ' Edinburgh Exchange Exchequer Bills. 1 

" Still further to complete the control of the banking interests over these exchange 
arrangements, a statement is produced by each bank on every exchange day, showing 
the amount of exchequer bills which it holds. And it is only necessary to add, that 
these exchange regulations, which have been found so salutary in practice, are the re- 
sult of mutual and voluntary concert among all the banks ; and although it may be 
said that they are not compulsory, yet in effect they are so, since any bank of issue re- 
fusing to accede to them would incur the risk of having its notes refused by the com- 
bined banks, which in Scotland would be tantamount to a suppression of the non-ac- 
ceding bank as a bank of issue. 

" In addition to these exchanges in Edinburgh, there are also exchanges made on 
the same days in Glasgow ; and the balances being advised by post to Edinburgh, are 
settled for next morning in the same manner by exchequer bills and Bank of England 
notes. So also, in order to save the trouble and risk of transmitting to Edinburgh or 
to Glasgow, notes collected by the different agents in the country, wherever there are 
two or more branch banks in the same town, their managers or agents exchange notes, 
and advise the state of balances to Edinburgh, when they are included in the next en- 
suing general exchange. 

" What I have now said may be sufficient, without going into further detail, to give 
a general idea of our system of exchanges. The Scotch banking interests have been 
mainly indebted, it is believed, for the complete organization of this system, to Mr. 
Blair, the Treasurer of the Bank of Scotland, one of the most talented of our Scotch 
bankers ; and although in description it may appear complicated, nothing can be sim- 
pler or more satisfactory than its operation in practice ; nor can any check be more 
efficacious." * 

The Scotch bankers are loud in their praises of the system of ex- 
changes. And justly so. But they are in error when they suppose that 
nothing like it exists in England. We have shown that the country banks 
make their exchanges with each other, and pay the difference by a draft 
on London. These operations have the same effect as the exchanges in 
Scotland of withdrawing from circulation all the superfluous notes ; that is 

* The Letter, already quoted, addressed to me by Mr. Bell. 
324 



Comparative View. 

te say, all the notes that come into the hands of the bankers. If it be 
true that notes remain out longer in circulation in England than in Scot- 
land, it arises not from any difference in the system of exchanges, but 
from a difference in the habits of the people with regard to " keeping a 
banker." If a Scotch banker issue £ 1,000 of notes in the morning, he 
feels assured that these notes will be paid into some other bank in the 
course of the day. An English banker is not so sure. The party may 
not " keep a banker," and he may then lock up the notes in a strong box 
for a week or ten days, until he have occasion to make a payment. We 
think it desirable that every man who has money should lodge it in a 
bank, not merely for interest, but for security ; and therefore we approve 
of the Scotch practice. But it is this universal practice of having a banker, 
and not merely the system of exchanges, that withdraws notes so rapidly 
from circulation. 

At the same time, it should be stated that the Scotch bankers are of 
opinion that our system of banking in England is chargeable with some 
portion of the blame. They say that as the English banks do not univer- 
sally allow interest on deposits and current accounts, the people have not 
the same inducement as in Scotland for placing their money in a bank. 
And as many banks charge commission on the operations of a current ac- 
count, it is the interest even of those who keep bankers to pay away the 
notes they receive to other parties, rather than to lodge them to their credit 
with their banker. On this subject I may quote the following extract 
from the second letter addressed to me by Mr. Bell. (A Letter to J. 
W. Gilbart, Esq., on the Regulation of the Currency by the Foreign Ex- 
changes, and on the Appointment of the Bank of England to be the sole 
Bank of Issue throughout Great Britain. By Robert Bell.) 

"In Scotland we have adopted every means to concentrate the resources of the coun- 
try in the hu.iaj of the banker. We allow a liberal rate of interest on deposits, while 
we not only eL^ourage small capitalists and traders to open accounts with us, but we 
induce our customers to make frequent operations on their accounts, and the result is 
that every superfluous bank note is rapidly returned upon the issuer. The very oppo- 
site course is pursued in England ; you allow no interest on deposits, you give no en- 
couragement to small depositors, while you put a barrier in the way of your customers 
making frequent operations, by the charging a commission on the debit side of their 
accounts ; the consequence of which is. that not only your paper but your gold curren- 
cy stagnates in the Aands of the public during times of prosperity, leaving the paper 
issues to be poured "back upon the issuers in seasons of adversity, thus aggravating in 
no slight degree the severity of monetary pressures." 

Even were the keeping of a banker as general in England as in Scot- 
land, the same system of exchanges could not be adopted. The Scotch 
system requires an equality, or an approach to it, among the several 
banks ; that the head offices of these banks, generally, should be in the 
capital ; and that the banks should have numerous branches throughout 
the country. These circumstances do not exist in England. And, more- 
over, we have the Bank of England, whose notes are a legal tender. It 
is obvious there can be no exchange of notes in places where, as in Lon- 
don, there is only one bank of issue. But the exchanges between English 
country banks are precisely upon the same principle as those in Scotland, 
and have similar effects. The differences are paid by drafts on London, 
payable on demand ; and these drafts again pass through the clearing. 

325 



A Treatise on Banking. 

Another advantage ascribed to the Scotch system of exchanges is, the 
surveillance which, by this means, the large banks at Edinburgh are able 
to exercise over the smaller banks in the provinces. That this surveil- 
lance exists in Scotland, and that it has been exercised beneficially, we 
entertain no doubt. It is equally true that such a surveillance does not 
exist in England. But the system of exchanges is not the cause of this 
surveillance, it is merely the instrument. In Scotland, the banks being 
few, and all their head offices being at Edinburgh, they are able to confer 
together, and to fix on rules for their general government. With any in- 
ferior bank that refuses to comply with these rules they can refuse to ex- 
change notes, and thus force it to compliance. In England, where the 
banks are numerous, and where their head offices are distant from each 
other, such a system cannot well be formed ; and hence each bank is free 
from the control of other banks, and may pursue any course it pleases, 
however injurious to itself or to others, so long as it is able to make good 
its payments to the public. The banks at Edinburgh, too, by means of 
their numerous branches, have the earliest information of any irregular 
practice that may have been adopted by a local bank in the provinces ; 
but the large banks in London have comparatively but a very imperfect 
knowledge of the operations of either the private or the joint-stock banks 
that are scattered over the country. 

From a want of this surveillance, banks in England have carried on 
business for years after they have been supposed to be insolvent. Hence 
they have gone on until their losses have not only absorbed the whole of 
their capital, but have required, to replace them, further demands to a large 
amount from their shareholders. In Scotland, these banks, if they could 
not be kept in the right path, would probably have been compelled to stop 
before they had wandered so widely. Banks, as we have seen, do some- 
times fail in Scotland, but never under circumstances that shake the pub- 
lic confidence in the general banking institutions of the country. 

6. The confidence placed in the banks of Scotland by the public ren- 
ders them less exposed to inconvenience during a season of pressure. 

When a pressure takes place in England, the first objects of suspicion 
are the banks. People that have money in their banker's hands draw it 
out and hoard it. The bankers, knowing that they are liable to these de- 
mands, draw in their funds, and make provision accordingly. Hence the 
capital of the country is rendered dormant at the time when it is most re- 
quired to be in a state of activity. Banks that issue notes are more liable 
than others to these sudden demands. But no such feeling exists at pres- 
ent in Scotland. And should the Act of 1845 have the effect of inoculat- 
ing the people with the love of gold, and by this means place the banks 
in the same position during a pressure as the banks of England, it must 
be regarded as a national calamity. 

On this subject, we again quote from the letter of Mr. Bell : — 

" Nor are these benefits, great^as they are, the only advantages which we have de- 
rived from our system of banking. Our one-pound notes connect and familiarize every 
artisan and laborer in the country with our banking establishments ; and the implicit 
confidence in our paper currency, thus created and perpetuated by the general expe- 
rience of the sufficiency of our banks, has on many occasions been remarkably illus- 
trated. It is no exaggeration to say, that at this moment nine tenths of the laboring 

326 



Currency in Scotland. 

classes of Scotland, if they had their choice, would prefer a one-pound note to a sov- 
ereign ; and, as a consequence of this feeling of security, combined with a sense of the 
other advantages of the system, no one in Scotland can have forgotten the truly na- 
tional stand on behalf of our currency, which was made by rich and poor in the year 
1825, when your English economists proposed to visit us with an injury similar to tha* 
which was in that year inflicted on England. 

" With banking establishments thus preeminently possessed of national confidence, 
no mercantile convulsion has hitherto created any general run on our great joint-stock 
banks. It has been otherwise in England, where, in consequence of legislative enact- 
ments, the public have been taught to regard gold and silver as the only representatives 
of value. The bond of union between the banks and the mass of the people has thus 
been severed ; and when a monetary crisis occurs, its consequences are incalculably 
more injurious. With us (though very rarely), runs have been occasionally made on 
particular banks ; but it has been merely to withdraw a deposit from one bank to place 
it in another ; or to exchange the notes of a suspected bank for the notes of one of our 
national joint-stock banks, the prevailing confidence in our paper currency remaining 
unshaken. In this way the disposable banking capital or resources remain in the ag- 
gregate unchanged ; whereas with you the run is for gold ; and the coin thus with- 
drawn from one bank is not re-deposited in another, but hoarded till the panic is over, 
by which means the entire banking resources of the country are involved in the conse- 
quences of the temporary disaster ; and this, too, at the very time when these resources 
are most needed." 

IV. — Laws of the Currency in Scotland. 

In Scotland the lowest point of the circulation is in March, and the 
highest in November. The advance, however, between these two points 
is not uniform, for the highest of the intervening months is May, after 
which there is a slight reaction ; but it increases again until November, 
and falls off in December. The reason of the great increase in May and 
November is, that these are the seasons for making payments. The in- 
terest due on mortgages is then settled, annuities are then paid, the coun- 
try people usually take the interest on their deposit receipts, and the ser- 
vants receive their wages. There are frequently large sums transferred 
by way of mortgage. It is the custom of Scotland to settle all transac- 
tions, large as well as small, by bank notes, not by cheques on bankers, 
as in London. It is remarkable that these monthly variations occur uni- 
formly every year, while the amount of the circulation in the correspond- 
ing months of different years undergoes comparatively very little change. 

A Table, showing the Circulation of all the Banks in Scotland on tlie last 
Saturday in March, July, and November, in the years 1834, 1835, 1836, 1837, 1838, and 
1839. 

March. 
£ 
2,834,627 
2.822,417 
2,934,292 
2,875,404 
2,811,377 
3,041,545 

This table shows us, first, that the circulation of Scotland is at its lowest 
point in the month of March, is higher in July, and reaches its highest 
point in November. Secondly, in the corresponding months of different 
years there is but little difference in the amount of the circulation. We 
find that during a course of six years, the difference between the lowest 
W 327 





Number of Banks 


1834 


21 


1835 


21 


1836 


21 


1837 


22 


1838 


23-24 


1839 


24-28 



July. 


November. 


£ 


£ 


3,094,468 


3,497,795 


3,097,947 


3,457,899 


3,222,142 


3,657,431 


2,962,673 


3,560,242 


3,060,199 


3,688,410 


3,120,183 


3,559,599 



A Treatise on Banking. 

and the highest circulation in the corresponding months is very trifling. 
Thirdly, the increase in the number of banks does not produce a corre- 
sponding increase in the amount of notes in circulation. In November, 
1834, the number of banks of issue was twenty-one; by November, 1839, 
they had increased to twenty-eight ; yet the circulation at the former pe- 
riod was £ 3,497,795, and in the latter, £ 3,559,599. Fourthly, these 
facts prove that the circulation of Scotland does not produce any effect upon 
prices, nor, consequently, upon the foreign exchanges. It is hardly ne- 
cessary to adduce evidence in proof of the fact, that the prices of commod- 
ities do not go on increasing from March to November in every year ; 
and if they do not, they cannot be regulated by the currency. Fifthly, 
this regularity in the circulation shows that it must be governed by some 
uniform laws, arising from the local circumstances or habits of the coun- 
try ; and this we think will always be the case where the banks are pas- 
sive, and permit themselves to be operated upon by the wants of the trade 
and commerce carried on in their respective districts. ( Currency and 
Banking, by J. W. Gilbart.) 

That the laws of the currency in Scotland are the same since the pass- 
ing of the Act of 1845 as before, is evident from the following Table : — 

An Account of the Circulation of the Banks op Scotland during the four 
weeks ending at the under-mentioned dates, in the years 1846, 1847, and 1848, distinguish- 
ing the notes of £5 and upwards from those below that amount. 

B Number -.. , - £5 and 

L,ate - of Banks. b ,xed lssue ' upwards. 

1846. March 28 18 £3,087,209 £ 828,778 
Aug. 15 " " 1,013,539 
Dec. 5 " " 1,235,072 

1847. March 27 " " 1,063,384 
July 17 " " 1.121,236 
Dec. 4 " " 1,143,241 

1848. March 25 " " 932,496 
July 15 " " 982,963 
Dec. 2 " " 1,158,981 

The Act of 1845 does not appear to have much effect on the amount 
of notes in circulation. But it has had an effect in other ways. It has 
required the Scotch banks to keep a larger amount of gold in their vaults. 
This is evident from the following Table : — 

A Keturn of the Aggregate Amount of Notes in Circulation in Scotland, and 
of the Aggregate Amount of Gold Coin and Bullion held by Banks in Scot- 
land, on the last day of the second week of February and November, in the years 1842, 
1843, 1844, 1845, 1846, and 1847. 



Under £5. 


Total. 


12,189,993 


£3,018,771 


2,358,365 


3,371,904 


2,761,786 


3,996,858 


2,296,959 


3,360,343 


2,374,682 


3,495,918 


2,589,241 


3,732,482 


2,019,439 


2,951,935 


2,123,680 


3,106,643 


2,411,141 


3,570,122 



Years. 


February. 


NOVEMBEE 




Notes. 


Coin. 


Notes. 


Coin. 




£ 


£ 


£ 


£ 


1842 


2,710,515 


408,220 


3,078,289 


411.070 


1843 


2,552,267 


481,102 


3,149,554 


381,907 


1844 


2,690,969 


422,968 


3,555,789 


324,982 


1845 


2,982,867 


403,083 


3,784,118 


676,674 


1846 


3,097,930 


1,116,088 


4,046,526 


1,284,261 


1847 


3,533,346 


1,280,597 


3,783,904 


1,100,258 



It has also had the effect of inducing the banks to increase their charges? 
and to decline granting cash credits. The banks are required to keep in 

328 



Currency in Scotland. 

their coffers a large amount of gold. This increased amount yields no 
interest ; and hence to that extent the Act diminishes their profits. To 
make up the same amount of profit as heretofore, the charges for dis- 
counts and advances are increased. This illustrates a principle that we 
think will always be found correct, that restrictions upon hanks are taxes 
upon the public. This principle is not sufficiently obvious to statesmen, 
nor even to the public, in England ; the mercantile classes have been 
pleased, rather than otherwise, when laws have been passed injurious to 
bankers. In Scotland such matters are better understood. The commer- 
cial classes have always rallied round the banks; they have had the saga- 
city to perceive the truth of the principle we have advanced ; they know 
that capital employed in banking must be made to produce an average 
profit : and if the Legislature causes one branch of business to be less 
productive, the bankers must make other branches more productive, in 
order to render capital employed in banking as profitable as it would be 
if employed in other occupations. But the Act of 1845 not only in- 
creased the charge, it led to a limitation of accommodation. There is no 
one point on which Scotchmen, of all classes, are more unanimous in 
opinion, than on the advantages that have arisen to their country from the 
system of cash credits. This system can exist only with a note circula- 
tion. One of its objects on the part of the banker is to increase his circu- 
lation. But he has no profit by increasing his circulation of notes, if he 
must keep in his coffers an additional amount of gold equal to that in- 
crease. But gold is the idol of our currency theory. The cash credit 
system, therefore, with all the virtues it produced, has been offered up in 
sacrifice to this " golden calf. 1 ' 

The following Table shows the Circulation of all the banks in Scotland 
during the year 1848 : — 

Amount of Bank Notes authorized by law to be issued by the several Banks of Issue 
in Scotland and the Average Amount of Bank Notes in Circulation and 
of Coin held during thirteen periods of four weeks, from December 4th, 1847, to November 
4th, 1848, as published in the Gazette. 



Names of Banka. 


Authorized 
Circulation. 


Average 
Circulation. 


Coin. 


Bank of Scotland 


£ 300,485 


£ 326,276 


£ 160,042 


Royal Bank 


183,000 


182,293 


80,866 


British Linen Company 


. 43^,024 


403,300 


142,052 


Commercial Bank of Scotland 


374,880 


430,415 


146,449 


National Bank of Scotland . 


. 297,024 


292,681 


70,415 


Union Bank of Scotland . 


. ' 327,223 


304,923 


91.163 


Edinburgh & Glasgow Bank 


. 136.657 


124,048 


36,716 


Aberdeen Banking Company . 


88,467 


103.776 


33,652 


Aberdeen Town & County Bank 


. 70,133 


83,767 


18,950 


North of Scotland Banking Company 


154,319 


141,919 


18,772 


Dundee Banking Company . 


. 33,451 


27,821 


5,281 


Eastern Bank of Scotland 


33.636 


31,806 


6,518 


Western Bank of Scotland . 


. 337,938 


374,959 


111,694 


Clydesdale Banking Company . 


104,028 


100.621 


28,001 


City of Glasgow Bank 


. 72.921 


104,366 


52,657 


Caledonian Banking Company 


53.434 


55.296 


15,762 


Perth Banking Company . 


. 38,656 


43,738 


13,738 


Central Bank of Scotland 


42,933 
. 3,087,209 


43,743 


10,880 


Totals 


3,180,748 


1,043,608 




329 







A Treatise on Banking. 

The following is the latest return, taken from the Bankers' Magazine 
for May, 1849, and shows the proportion between the notes of £ 5 and 
above, and those below £ 5. One advantage arising from this publication 
is, that we can so readily refer to the records of the circulation. Those 
who have never waded through Parliamentary Returns in order to prepare 
tables for the public little know the time and labor thus consumed. We 
now find this done to our hand, and laid before us in a most lucid manner, 
every month. The future history of banking and of currency will be 
compiled from the facts recorded in the pages of the Bankers' Magazine. 

Average Circulation and Coin held by the Scotch Banks during the four weeks 

ending Saturday, the 24th day of March, 1849. 

Average 
Average Circulation during Four Amount of 







Weeks 


ending as 


above. 


Gold & Silver 
Coin held 


Names of Banks. 


Authorized 
Circulation. 


£5 and 
upwards. 


Under 
£5. 


Total. 


during Four 

Weeks~endin£ 

as above. 




£ 


£ 


£ 


£ 


£ 


Bank of Scotland .... 


. 300,435 


95,125 


194,649 


289,774 


160,304 


Royal Bank of Scotland 


183,000 


5S,759 


115,037 


173,796 


79,001 


British Linen Company . . , 


. 433,024 


125,255 


255,999 


331,254 


135,387 


Commercial Bank of Scotland 


374,830 


124,923 


257,145 


332,073 


107,951 


National Bank of Scotland 


. 297,024 


85,453 


182,351 


267,804 


52,977 


Union Bank of Scotland 


327,223 


107,477 


190,477 


297,954 


105,525 


Edinburgh & Glasgow Bank . 


. 136,657 


45,206 


73,924 


119,130 


34,426 


Banking Company in Aberdeen . 


86,467 


31,213 


63,856 


100,070 


40,207 


Aberdeen Town & County Bank 


. 70,133 


21,834 


52,369 


74,703 


16,925 


North of Scotland Banking Company . 


154,319 


46,853 


80,512 


127,366 


19,844 


Dundee Banking Company 


. 33,451 


8,208 


18,996 


27,205 


4,698 


Eastern Bank of Scotland 


33.636 


11,876 


18,226 


30,102 


8,170 


Western Bank of Scotland 


. 337,933 


99,864 


255,937 


355,801 


116,909 


Clydesdale Banking Company 


104,023 


20,233 


70,632 


90,865 


31,193 


City of Glasgow Bank 


. 72,921 


39,572 


53,657 


93,229 


56,670 


Caledonian Banking Company 


53,434 


13,626 


33,163 


46,789 


16,642 


Perth Banking Company . 


. 38,656 


10,187 


24,554 


34,741 


11,102 


Central Bank of Scotland 


42,933 

. 3,037,209 


10,603 


26,861 

1,978,845 


37,464 
2,935,120 


11,242 


Totals 


956,272 


1,009,173 



Among the theories on the currency was a notion of establishing one 
bank of issue for the United Kingdom. The following evidence on this 
subject was given by Mr. Kennedy, the manager of the Ayrshire Bank, 
before the Committee on Banks of Issue in 1841 : — 



" Do you think the establishment of a single bank of issue for the United Kingdom 
would be advantageous or otherwise to Scotland '?"...." I conceive that it must be 
very destructive to Scotland." 

" In what way ?".,.." It is perfectly clear that it would overturn the present sys- 
tem of banking in Scotland. Our system of banking is based upon the power that our 
currency gives us to allow a high rate of deposit interest ; if you take from us the profit 
that our currency yields, we must make our profit from some other source ; we must 
increase the charges to the community, and allow less interest, or probably no interest 
at all, and our system will be totally changed." 

Another favorite notion has been the abolition of all notes under £ 5. 
A Committee of the House of Lords and a Committee of the House of 
Commons made reports on this subject in the year 1826. The evidence 

330 



Currency in Scotland. 

produced by the Scotch banker was so overwhelming, that both the 
committees recommended the postponement of the measure. Robert 
Paul, Esq., secretary of the Commercial Bank of Scotland, stated to the 
Committee of the House of Lords that the following would be the effects 
of the abolition of the small notes. (Lords' 1 Report, p. 204.) : — 

" We should diminish the number of our branches, because we should be involved 
in an expense in the transmission of gold, which the profits arising out of our branches 
could never compensate ; they are not the most profitable part of our business ; they 
are attended with a great many hazards and disadvantages. 

" We should withdraw our cash accounts, because they could no longer accomplish 
the end for which they were granted ; which was the maintaining our circulation, espe- 
cially of our small notes. 

" We should diminish the interest of our deposit accounts, because we should then be 
required to keep a very large amount of dead stock of gold in our coffers, to meet the 
constant variations that would arise, and to keep it wholly unproductive. I imagine 
that if a gold currency were substituted for a small-note currency, there would be a 
much greater amount of gold required than there is at present of notes. We have at 

E resent, in order to meet the constant variations, a large amount of notes constantly on 
and, and in the same way we should require a stock of gold, and that would be pro- 
portionably larger as the general circulation would be greater." {Lords' Report, 
p. 132.) 

The following letter, written by an agent at Inverary, to Roger Ay toun, 
Esq., manager of the Renfrewshire Bank at Greenock, states the incon- 
veniences which the writer apprehends would result from the introduction 
of a metallic currency into that part of Scotland : — 

" With regard to the proposed measure of suppressing bank notes in Scotland for 
less than £5,1 think it would be ruinous to this country ; for I cannot see how, if it 
takes place, the business of the country can be carried on. Confining myself to some 
of the most prominent instances in which the Highlands will be affected, I shall state 
the difficulties that occur to me. Our produce chiefly consists of cattle and sheep, 
grain, wood, kelp, and the production of the fisheries. Cattle are brought to the coun- 
try markets by the breeders, chiefly small farmers, every man attending his own, and 
having generally from one to three young animals for sale. There they are met by 
the dealers and graziers, who purchase such of the beasts as suit them; and it is seldom 
that a single animal, at the age of one or two years, being the ages at which they sell 
them to the dealers and graziers, comes to the price of £ 5 ; the price is more frequently 
from £ 2 to £ 4. Of these a dealer often purchases two or three hundreds in single 
beasts, so that he has more than £ 1 and less than £ 5 to pay to each of as many sellers ; 
but he has no notes under £ 5, and the sellers are not able to return balance in any 
coin. This will occur to many dealers at every market ; and how is the difficulty to 
be removed ? The dealers must all come loaded with gold and silver, and this they 
cannot carry to the necessary amount ; and besides, they will not be supplied by banks 
with gold and silver for their bills by which there would be no profit. The means of 
paying being wanting, the seller will not deliver, and the object of the parties is frus- 
trated ; and thus a difficulty is cast in the way of disposing of this material article of 
Highland produce, which must discourage the sales, and occasion a reduction of price, 
and consequently of the rent and value of land. 

" It is the same in the case of grain, of which bear or barley is what is chiefly sold 
by small farmers to the distilleries. In settling for some bolls, bought in small quan- 
tities of two or three bolls, £5 notes will be found most inconvenient ; and the pur- 
chasers and manufacturers of wood and bark, and of seaweed for kelp, who require 
many hands, and pay off their workers generally once in a month, none ot whom will 
draw so small a sum as £l, nor so large a sum as £5, will experience the same 
difficulty. 

" The herring fishery on our coasts employs several thousand men, and is of very 
great importance. Instances have occurred of herrings being taken in Lochfine alone 
to the value of £ 40,000 in one season ; and a thousand boats are generally employed 

331 



A Treatise on Banking. 

there in the fishing. The fishermen every morning sell their fish to the curers on 
shore, receive their money, and set out in quest of more. The value of each boat's 
fishing for a night sometimes exceed £ 5, but generally is under it ; and there are, in 
this fishing station alone, a thousand boats to be paid off every morning, of whom most 
probably two thirds have to receive less than £ 5 each. It will be impossible to provide 
gold and silver sufficient for such a purpose ; and in the remote parts of the North 
Highlands, where the fishery is much more extensive, and banks at a greater distance, 
the difficulty is insuperable. 

" At present the business of the Highlands is transacted by means of bank notes of 
£ 1 and £ 1 Is. with some larger notes on occasions, and that with the greatest facility. 
Cattle dealers, and all others, having to pay away money to any amount in small sums 
to a number of people, as in the instances mentioned, prepare themselves by a mix- 
ture of notes, some large and some small, accompanied by a few pounds of silver, and 
every thing goes on well. These notes are preferred by the country people before 
gold, both because they are unable to distinguish between the genuine and base metal, 
and because these coins are more liable to be lost from their pockets than notes : and 
they have no reason to repent their confidence in the stability of these banks, whose 
notes they have been accustomed to receive for so many years in their transactions. 
But if small notes are superseded, and gold substituted, it is not easy to see how the 
supply of gold is to be kept up to carry on the business and transactions of this coun- 
try. Should a quantity of it be received into the circulation, it would not remain long, 
but find its way into the banks, who will not again give it out in bills as they do their 
notes, and it will immediately become a scarce article in the country. A person, then, 
having to pay in small sums, will on every such occasion be obliged to send his large 
notes to the bank that issued them, perhaps a hundred miles off, to receive gold and 
silver in their place, to answer his purpose. The conveyance of it to him is next to 
be provided for. The weight may be too much for the post. There are no mail 
coaches ; and he must either employ a earner, moving too slowly for his occasions, or 
be at the expense of sending a trusty person for the treasure. 

"In transmitting money from one part of the country to another, the same difficulty 
will often present itself. Suppose a person in the "Western Isles has to pay £ 19 to 
one on the Continent. At present this may be conveniently done by three notes of 
£ 5 and four of £ 1 inclosed by post ; but when there shall be no £ 1 notes, the odd 
£ 4 must be sent in gold or silver, not conveniently carried in a post letter, and re- 
quiring that a person be employed for the purpose, and at some expense. 

" Many other such difficulties and inconveniences will occur. These presented 
themselves to me, and I stated them hastily, without regard to order. If you find 
any thing in them useful for the purpose I shall be pleased. But it appears extremely 
hard that the Scotch system should be disturbed, and that we should be obliged to 
adopt one, not only unsuitable to our purposes, but ruinous to the business of our 
country." 

V. — Those Operations of the Scotch Banks that refer to Cash Credits, 
Deposits, Remittances to India, and the Settlement of the Exchanges. 

I. Cash Credits. — A cash credit is an undertaking on the part of the 
bank to advance to an individual such sums of money as he may from 
time to time require, not exceeding in the whole a certain definite amount, 
the individual to whom the credit is given entering into a bond with secu- 
rities, generally two in number, for the repayment on demand of the 
sums actually advanced, with interest upon each issue from the day upon 
which it is made. 

Cash credits are rarely given for sums below £ 100 ; they generally 
range from £200 to £500, sometimes reaching £ 1,000, and occasional- 
ly a larger sum. 

A cash credit is, in fact, the same thing as an overdrawn current ac- 
count, except that in a current account the party overdraws on his own 

332 



Cash Credit System. 

individual security, and in the cash credit he finds two sureties who are 
responsible for him. Another difference is, that a person cannot over- 
draw his current account, without requesting permission each time from 
the bank ; whereas the overdrawing of a cash credit is a regular matter 
of business, — it is in fact the very thing for which the cash credit has 
been granted. The following advantages have been ascribed to the cash 
credit system. 

1. Cash credits enable young men of good character to acquire wealth 
and respectability. (This, and the following quotations, are taken from 
the evidence given by the witnesses from Scotland, before the Committees 
of Lords and Commons, appointed to consider the expediency of abolish- 
ing the notes under £ 5). 

" I have known many instances of young men who were starting in the world from 
low situations of servants, who have conducted themselves well during the time they 
were apprentices, or farm servants even, who were able to procure an account from a 
bank by means of some friends or acquaintances becoming their securities, that in the 
course of their business have raised themselves to situations by becoming farmers of 
considerable extent, or manufacturers in a way highly creditable to themselves and 
beneficial to the country. 

" Without cash credits, sober, attentive, and industrious people, would not have the 
means at all of following up what they very deservedly might be encouraged to follow 
up ; they begin the world, in all probability, with a mere trifle, which trifle they have 
been known to make by their own industry. Having made that, it recommends their 
character to persons of perhaps a little more fortune, who, to encourage them, become 
sureties for their cash accounts. 

" The classes of persons who have cash credits are very various ; but they are gen- 
erally the industrious classes of persons, merchants, and traders, and farmers. 

" The accommodation is more readily given to a small than to a large amount, — 
the bank preferring to grant ten credits for £ 100 than one for £1,000, thereby demon- 
strating that their accounts are quite as much for the asistance of the poor as for the 
accommodation of the rich." 

2. Cash credits furnish great facility to tradesmen and others in carry- 
ing on their business, either in the way of raising money, in making pur- 
chases, or in employing at particular seasons their surplus capital. 

" Is the advantage to the party borrowing greater under the system of cash credit 
than under the system of lending in the ordinary mode 1 — Infinitely. 

" Why 1 — As to the question of actual pounds, shillings, or pence, paid in the shape 
of interest, there is, in the first place, this difference, that when he discounts a bill he 
pays the interest on the sum for three months, if that be the currency of it ; should 
any accidental mercantile transactions throw into this individual's hands, on the next 
day, the same amount which he had thus received from the banker, he has lost the 
benefit of the transaction, because he must keep this ; if he has a deposit account with 
the banker he must keep it at banker's interest, while he is anticipated by having paid 
to the banker three months' discount interest on his bill ; if a trader were to take his 
money systematically by discounts instead of by cash accounts, a disadvantage to him 
would arise. The same principle applied to small sums ; if half or a quarter, or any 
part of the advance which he may have received upon the cash account comes in to him, 
he immediately lessens the advance by paying it into the bank, and the interest being 
calculated at the close of the account, there is a progressive account of interest dimin- 
ishing with the principal sum till it is extinguished. So far as to actual benefit of 
interest; but the convenience of getting money when wanted, affords a very material 
advantage, independent of the actual benefit. 

" What are the facilities that exist in obtaining this sort of advantage, compared 
with those of obtaining an ordinary loan 1 — When a person applies for a cash ac - 
count, which is not an immediate advance of monev on the part of the bank, but a 

333 



A Treatise on Banking. 

conferring of the power or privilege of drawing upon the bank to the extent specified, 
the person proposes two or more personal sureties : a bond is made out, and he draws 
as occasion requires. In this way he has never more from the bank than is absolutely 
necessary for the purposes of his business. The account is never recalled, unless it 
has ceased to be beneficial to the bank, by having been but little operated upon, and 
thus not having promoted the circulation of the bank's notes. Whenever it becomes 
a dead advance, the bank calls it up. In the case of a person obtaining a loan, he 
would probably in the first place, have to pay the interest down at once ; he would 
have to pay it upon the whole sum, whether he should require it ultimately or not, 
and it would be liable to be recalled by the lender at his pleasure." 

" The person who procures a cash credit, does so upon the security of two or three 
substantial individuals. He may be a man of little property, but upon that security 
he gets a credit, perhaps of £ 500 ; his bill to any thing like that amount, without 
those securities, would not be discounted. 

" After the permanent credit is given, the option of using it lies solely with the bor- 
rower, not with the bank, as does also the option of the period of repayment. 

"If a small trader borrow of an individual (not a banker) £ 100, that individual 
would not be disposed to receive back his money in £ 5, or £ 10, or £ 15, — he would 
wait till the term expired, when he would receive the whole. When a credit is granted, 
the individual, perhaps, draws out £ 50 to-day, and pays in £40 to-morrow, and goes 
on in that way, always having credit with the bank to the extent originally stipulated. 

" The repayment as well as the overdraught is permitted by the bank to be made 
in small sums piecemeal : so that by attention in his repayment, the borrower saves 
himself from paying interest on more than the precise advance for which he has occa- 
sion at the moment, and can constantly convert to a safe and profitable purpose the 
money which he may receive in the course of his trade, however small the amount. 

" These advantages are steadily and uniformly afforded at all times to the industri- 
ous tradesman, or farmer, the merchant, the professional man, and the landlord." 

3. Cash credits supply capital for carrying on extensive branches of 
trade, employing the population, and constructing public works. 

" Cash credits for small sums enable the poor to be as instrumental, as far as their 
means go, in increasing the capital of the country as the rich are. Tor the produce 
of that industry which cash account credits enable to operate, and of that capital 
which they leave at liberty to be employed in trade, goes to increase the real wealth 
and capital of the country ; and a great proportion of the transactions, carried on 
through the instrumentality of cash accounts, consists of those of the poorer classes. 

" I apprehend that those cash credits have enabled a large number of manufacturers 
to carry on business, and to employ the population of the country, who, if they had 
not such credits, could not have carried on such business, nor employed such popu- 
lation. 

" Cash credits are granted to almost all descriptions of persons throughout the 
country. Every young man who has a prospect of success on entering life, applies 
for a cash credit. A great many gentlemen have cash credits, and a great many farm- 
ers. There is hardly any public work undertaken in Scotland that the first object is 
not to apply for a cash credit, to carry it on to advantage. All the roads in Scotland 
are managed by Parliamentary trustees ; and I believe there is hardly any one of 
those sets of trustees which have not cash accounts for the purpose of carrying on 
their operations. I am sure many of the most important public works in Scotland 
would not have been carried on, or certainly not with the same advantage, but for the 
credits they obtain from the banks." 

4. Cash credits prevent large manufacturers setting up as bankers, and 
thus they exclude those evils which in other countries have resulted from 
the failure of private banks. 

" When the system is applied to the case of large manufacturers, employing hun- 
dreds or thousands of workmen, and possessing a cash credit to a proportionate 
amount, upon sufficient security, one obvious effect is, that the temptation is removed 
from the manufacturer, of attempting to issue notes, and becoming himself a banker, 

334 



Cash Credit System. 

an error or temptation which, if what is said is true, has been the main cause of the 
institution of many insufficient English bankers, whose partners, from being good 
traders, became bad bankers, and brought upon their own district the distress which 
bad banking sooner or later always produces." 

5. Cash credits have a considerable moral influence upon the habits 
and character of the people. 

" The security afforded to a bank by its debtor, or rather its customer, on a cash cred- 
it, is by bond, with two sureties at the least, — occasionally there are not two sureties, 
but frequently many more ; the practical effect of which is, that the sureties do, in a 
greater or less degree, keep an attentive eye upon the future transactions and charac 
ter of the person for whom they have thus pledged themselves. And it is, perhaps, 
difficult for those who are not intimately acquainted with it to conceive the moral 
check which is afforded upon the conduct of the members of a great trading com- 
munity, who are thus directly interested in the integrity, prudence, and success of 
each other. It rarely, indeed, if ever, happens that banks suffer loss by small cash 
credits. x 

" This system has a great effect upon the moral habits of the people, because those 
who are securities feel an interest in watching over their conduct, and if they find 
they are misconducting themselves, they become apprehensive of being brought into 
risk and loss from having become their securities, and if they find they are so miscon- 
ducting themselves, they withdraw the security. 

" Sometimes cash credits are recalled from the interference of the securities. They 
have the power of knowing from the bank at any time the state of the account, and 
the operations upon it ; and if, from that, or from other circumstances, they have been 
led to think less favorably of the person for whom they gave the security, they can 
immediately cease to allow that account to be further operated upon." 

The Report of the Committee of the House of Lords contains the fol- 
lowing observations upon the effects of cash credits : — 

" There is also one part of their system which is stated by all the witnesses, (and in 
the opinion of the committee very justly stated,) to have had the best effects upon the 
people of Scotland, and particularly upon the middling and poorer classes of society, 
in producing and encouraging habits of frugality and industry. The practice referred 
to is that of cash credits. Any person who applies to a bank for a cash credit, is 
called upon to produce two or more competent securities, who are jointly bound ; and 
after a full inquiry into the character of the applicant, the nature of his business, and 
the sufficiency of his securities, he is allowed to open a credit, and to draw upon the 
bank for the whole of its amonnt, or for such part as his daily transactions may re- 
quire. To the credit of this account he pays in such sums as he may not have occa- 
sion to use, and interest is charged or credited upon the daily balance, as the case may 
be. From the facility which these cash credits give to all the small transactions of the 
country, and from the opportunities which they afford to persons who begin business 
Avith little or no capital but their character, to employ profitably the minuted products 
of their industry, it cannot be doubted that the most important advantages are derived 
from the whole community." 

As by cash credits the banks render themselves liable to be called upon 
at a moment's notice for the amount of the credit granted, it is natural 
to suppose that they contemplate some advantage in return. The ad- 
vantage contemplated is the circulation of their notes. It is not intended 
that the cash credit shall be a dead loan of capital. It is expected that 
there shall be a perpetual paying in and drawing out of money, and the 
smaller the denomination of the notes drawn out, the more advantageous 
is the account to the bank. Manufacturers, who pay away large sums 
every week in wages, linen buyers and cattle dealers, millers and pro- 
vision merchants, who make their purchases in small sums, and generally 

335 



A Treatise on Banking. 

all those who have quick returns of money passing through their hands 
have the means of making a cash credit profitable to the bank. On this 
subject, I again quote the evidence : — 

" To secure to the bank the advantages of circulation, which is to make it worth 
while to afford these facilities at so little expense to their customers, he, on his part, 
is to lose no opportunity of bringing to the bank, and thus withdrawing from circula- 
tion, the notes of every rival bank which comes into his hands in the course of his 
transactions ; or of paying away, and thus introducing into circulation, as many of the 
notes of the bank as his transactions admit of, always £ 1 notes if possible. The pay- 
ments and receipts must be frequent, for in this consists the banker's profit, inas- 
much as the payments are uniformly made by him in his own notes, and the receipts 
are generally, in a very great degree, in the notes of other banks. Thus, supposing a 
shopkeeper to have a credit for £50 or £ 100, if his receipts and payments average 
£ 5 per day, he may in six months, or 150 days, have placed 750 of his banker's £ 1 
notes in circulation. 

"It is quite necessary, in order to render a cash account beneficial, that there 
should be repeated and continued operations upon it ; that the transactions should be 
numerous ; that there should be a continual drawing out and paying in of money ; 
and that, by these means, a circulation of the bank-notes may be promoted ; otherwise 
the account is withdrawn, and the great reason of this is, that these accounts are not 
intended to form dead loans, but to be productive of circulation to the bank. 

" The explanation of the cash credit system is this : — The bank who first opened a 
cash credit, opened it with an individual shopkeeper. He received payment of his 
goods in the currency of the country. Previous to that system, he used to put his cur- 
rency into his drawer, £ 8 or £ 10, or whatever it was. If people brought him larger 
money to pay for his goods, he returned those people change ; or if he did not, he kept 
it until he wanted to purchase for himself. But, after the banker had explained to 
him what he wished him to do, when the shopkeeper received the currency of the 
country, instead of putting it into his till, he looked to the banker's shop as his till, 
and handed it over to the banker, and left his own till with only the change which he 
could not do without. Then, when he required sums to pay away, instead of taking 
them from his till, he sent to the bank, and took from it what he required, the banker 
giving him his own notes. So much of the previous currency was thus removed, and 
the banker's notes taken in its place. That was the effect of the first operation, when 
the thing was only in so simple a state that there was only the notes of one bank and 
a metallic circulation. If you apply the same principle where there are thirty banks, 
the result would be the same. The amount of the circulation of the country continues 
the same, but the proportion between its parts vary." 

II. Deposits. 

A sum of money deposited or placed in a bank is called a deposit. 
Some banks grant interest on these deposits ; others do not. The Lon- 
don bankers allow no interest on deposits, but the English country bank- 
ers usually do. The Scotch banks have carried this practice to the great- 
est extent ; and the deposit system forms a very important branch of the 
banking system in Scotland. 

Those regulations which the banks have established as the rule of their 
transactions between themselves and the depositors are the following : — 

The depositor may place in the bank any amount of money he pleases 
above £ 10. 

The whole or any part of the deposit may be withdrawn at the plea- 
sure of the depositor without previous notice. 

Interest is allowed on the deposit from the day it is lodged in the bank 
until the day it is drawn out. 

336 



Scotch Deposit System. 

The balance of a current account is allowed interest at the same rate 
as though it were a permanent deposit. 

The following are the advantages ascribed to the deposit system : — 
1. The system of deposits is advantageous to the lower classes, in pro- 
viding a place of safety for their deposits, in granting them interest on 
their savings, in encouraging habits of frugality, and thus often enabling 
them to advance in society. 

" The deposit branch divides itself into two parts : — There is, first, what is called a 
running account, where the party pays in from day to day the whole surplus funds in 
his hands, and on which he receives interest. These depositors are, in general, shop- 
, keepers, and merchants, and traders, more particularly in large towns ; and in these 
deposit accounts there is found at their credit at the close of every day, the whole 
amount of the money for which they have not immediate employment in their trade. 
The second branch of deposits consists of small sums placed in the hands of the bank 
at interest, which have been in general the savings of their industry, and which are put 
into the hands of the bank to accumulate, and on which they may operate not in the 
way of a running account. They may receive a partial payment whenever they 
please ; and in general these deposits are very seldom removed, excepting when an in- 
dividual has occasion to build a house or begin business. This class of deposits is dis- 
tinguished from running accounts by the name of deposit receipts." (Lords' Report, 
p. 80.) 

" What class of the community is it that makes the smaller deposits ? — They are 
generally the laboring classes in towns like Glasgow. In country places, like Perth 
and Aberdeen, it is from servants and fishermen, and just that class of the community 
who save from their earnings in mere trifles and small sums till they come to be a bank 
deposit. There is now a facility for their placing money in the provident banks, who re- 
ceive money till the deposit amounts to £10. When it amounts to £ 10, it is equal to 
the minimum of a bank deposit. The system of banking in Scotland is just an ex- 
tension of the provident bank system. Half-yearly or yearly these depositors come to 
the bank, and add the savings of their labor, with the interest that has accrued from 
ths previous half-year or year, to the principal. And in this way it goes on, without 
being at all reduced, accumulating, till the depositor is able either to buy or build a 
house, when it comes to be one, two, or three hundred pounds, or till he is able to com- 
mence business as a master in the line in which he has hitherto been a servant. A 
great part of the depositors of the bank are of that description ; and a great part of 
the most thriving of our farmers and manufacturers have risen from such beginnings. 
And in regard to the deposit receipts, I may just mention what is generally the way in 
which they are granted. To-day a person from the country appears at the bank, it 
may be with £20 or £30 or £50. We probably never see him again till that day 
twelvemonths, but we are sure of seeing him about that very day. If he has £ 20 in 
the bank, he may come and say, ' There are four guineas ; you will give a receipt for 
£25.' He knows well that the £20 has earned 16s. interest; and I do consider that 
the four guineas are just the savings of the year. He goes away with his new receipt, 
and returns on that day twelvemonths ; then again it is added to, and thus accumulated, 

— and so on in many instances throughout the country." (Commons' Report, p. 159.) 

2. The system of deposits is advantageous to capitalists in furnishing 
them with a secure mode of employment of capital, either for a longer or 
a shorter period, at their pleasure. 

" What class of persons form the large and steady depositors in the Scotch banks ? 

— The middling and the lower order of society, industrious poor people, who are sav- 
ing their money, and small capitalists who have raised a moderate sum of money, 
upon the interest of which they live. 

"Do many persons live upon the interest of their deposits, as far as you know? — 
Yes, a great many. (Lords' Report, p. 165.) 

" Do you know whether it is the practice of persons who have small capitals in 
Scotland, to invest them in the public securities in London, or to deposit them with the 

337 



A Treatise on Banking. 

banks in Edinburgh 1 — I believe, almost universally, to deposit them with a Scotch 
bank. 

" And they live upon the interest of what they so deposit, in the manner as persons 
here live upon their interest on stock ? — Yes ; they often look to the permament capi- 
tal with a view of leaving it at their death, taking the interest during their lives." 
( Commons' Report, p. 124.) 

" The deposit accounts are of two kinds, — one kind from the commercial people 
who have large sums that they wish to keep in a disposable form, waiting an opportu- 
nity of any investment which may occur. Of the operating deposits, there are others 
who keep the money until a favorable turn in the Stock Exchange enables them to in- 
vest it there. And there are others, respectable householders, who keep it for the pur- 
poses of their family expenditure. I reckon that these and the sums due upon them 
average one half of the aggregate amount of a bank's deposits." (Lords' Report, 
p. 183.) 

" Have you formed any estimate of the amount of deposits in all the banks in Scot- 
land'? — I certainly have been at very great pains to get information upon the subject; 
and I am satisfied that the amount is considerably above twenty millions, — I should 
say, twenty -five millions. 

" From what class of persons are those deposits chiefly 1 — Generally from indus- 
trious tradesmen, small shopkeepers, varying from £ 10 to £ 500. The greatest num- 
ber of deposits, and the greatest in their aggregate amount, are in small sums. 

" Are there not, however, deposits from richer classes, and each of them to a much 
larger amount? — Certainly, there are deposits from £1,000 to £20,000 and 
£30,000. (Ibid. p. 231.) 

" In the spring of 1824, the banks in Scotland began, in some instances, to decline ac- 
cepting deposits at all. — In the autumn of 1824, the great banks made an express rule 
that they would not accept more than £ 5,000 from any one depositor. They allowed 
2£ per cent, on the first £ 3,000, and 2 per cent, upon the remainder of the £ 5,000, 
and above that they would not allow any interest. That was the general rule with the 
great banks at that period. There were many people who preferred leaving their 
money, though they received little or no interest, to taking it away. That commenced 
in 1825." (Ibid. p. 158.) 

3. The system of deposits is advantageous to the country, by augment- 
ing the amount of national capital, by increasing the demand for labor, by 
granting facilities to trade and commerce, and by removing the tempta- 
tions to engage in hazardous speculations and foreign investments. 

" This system was adopted before the middle of the last century. The rate of inter- 
est allowed since then has been regulated by the value of money, and has, of course, 
fluctuated considerably ; but it has ever been such as to afford as high a return to the 
depositor as has been consistent with the reasonable profit, and of course the security 
of the bank. The effect of this system has been to encourage and to afford the 
means of the accumulation of capital among the lower, as well as the higher, orders, 
by placing within the reach of all, a convenient, safe, and moderately profitable invest- 
ment of money, and to offer an inducement to capitalists to retain their accumulations 
in Scotland, notwithstanding the opportunities or temptations which foreign invest- 
ments might hold out." (Lords' Report, p. 175.) 

" The system of deposit accounts, I think, is a very great stimulus to the habits oi 
industry, and economy, and frugality, in Scotland. The whole surplus capital of the 
individual is thus rendered productive. 

" Under the system on which you conduct your business, is not the money arising 
from those deposits issued out, to encourage the further consumption of labor in the 
country ? — Yes. 

" It would be a loss, then, to the country, if it was to be removed from the channel 
in which it is now placed, into this country, on government debentures 1 — It certainly 
would. 

" Under this system, does not the poor workman gain immediate interest for his sav- 
ing, whilst the saving is immediately employed, through the bank, in putting a further 
portior. of labor into motion ? — Precisely so. It is in this way that the wealth of 

338 



Scotch Deposit System. 

those individuals is concentrated, and, through the agency of the bank, is brought to 
bear in carrying on the business of the country." (Ibid. p. 283.) 

" Is there not an advantage to the public from the gathering of those small capitals 
together, forming part of the deposits of the bank, and so being sent out again in large 
sums, like other capitals, for the purpose of being applied to increase the powers of 
productive industry 1 — The Scotch banks form a sort of reservoir for receiving the 
small sums of capital scattered throughout the community, and then sending them forth 
into channels of trade, so as to promote the commerce, manufactnres, and agriculture 
of the country. (Commons' Report, p. 203.) 

" Are you of opinion that if the deposits with the banks of Scotland were considerably 
lessened, the banks could afford the same accommodation by discounts which they do 
at present % — I should think that is impossible, because it forms part of their capital. 
It would diminish the capital which is at present employed in that business, of which 
discounting forms a great part. 

" Would not any such diminution of discount operate injuriously to the general 
trade of the country 1 — The want of those discounts must diminish the trade of the 
country, inasmuch as the manufacturer and merchant receives his money at least three 
months sooner by discounting their bills, than he could possibly get payment of his 
account." (Lords' Report, p. 266.) 

" The system of deposits forms a great part of the funds arising from our banking 
system. It is a great deposit of money, which is given out to the trade of the coun- 
try, for the profit of one per cent., for which the bank runs the risk of its business. If 
that great deposit were withdrawn, and could not be issued with the same degree of 
safety, I conceive the consequences would be a total derangement of the whole system ; 
and ruin of our country." (Lords' Report, p. 235) 

'• If the banks are under the necessity of reducing the interest on deposit accounts, 
the depositors must look about them and find out on what security they can lend their 
money so as to obtain a higher rate of interest. It would certainly diminish the capi- 
tal of the trading part of Scotland, inasmuch as the banks would not have it in their 
power to assist them in trading by discounting, but it might be lent on Government 
securities or landed property, and" the temptation of a higher interest from individuals 
would, undoubtedly, be a temptation to many, and a temptation that could scarcely be 
resisted by those whose income depends entirely upon the interest of that lent money, 
to lend it on personal and doubtful security. 

'• When the banks reduced their interest some time ago, a great part of the deposits 
was drawn out, to be invested in various different ways. And, as the depositors did 
not get from the banks the interest on which they were depending, and did not choose 
to make a less interest, many of them went into schemes, which have turned out very 
ruinous to them. It has been one great cause of over-speculation, that the people did 
not get the interest they had been accustomed to from the banks. They, therefore, 
drew it out to invest it in joint-stock companies, lent it to builders, or other inferior se- 
curities, or became builders themselves." (Ibid. p. 250.) 

4. The system of deposits is advantageous to the banks, by inducing 
every person to deposit his money in a bank, by furnishing the banks 
with capital to carry on their business, and by putting in circulation a 
large amount of their notes. 

' ; The universal practice at Glasgow is to pay into the bank with which the individ- 
ual transacts his business, the whole of the notes he has in his possession, or nearly the 
whole, every day." (Commons' Report, p. 50.) 

" Unquestionably, the giving of interest upon deposits is an inducement to every 
person that has any surplus money in his hands, to place it in the hands of his banker. 
And in the same way in the case of cash accounts, every payment by the holder of a 
cash account into the bank, either diminishes the interest he has to pay to the bank, or 
if the account should turn in his favor, enables him to get interest from the bank, and 
that is a great inducement for every person to pay in daily into his bankers hands all 
the monev which he does not require for the purposes of his business." ( Commons 1 
Report,?. 20 1.) 

• The means of a bank I conceive to consist of three things : first, capital paid in 

339 



A Treatise on Banking. 

its own stock ; secondly, the notes which the bank is able to keep afloat in the circle ; 
thirdly, the amount of the deposits." (Lords' Report, p. 195.) 

" And if the amount of deposits were lessened, in that case their means of issuing 
money upon discount would be proportionately lessened 1 — Yes. (Commons' Report, 
p. 150.) 

" Every bank constituted as the banks of Scotland are, make advances in two ways, 
— they make them upon cash credits, and they make them upon the discount of bills. 
They also borrow in two ways, — they borrow upon deposit receipts, and they borrow 
also upon accounts current. That is, if a gentleman opens an account, and puts 
£ 100 to his credit, and operates upon it, drawing out a part of it, leaving a balance 
in the hands of the bank, then is there a borrowing to the extent of the balance that 
is so left. Those accounts we do not allow to be overdrawn, so that the advance is in 
two ways, and the borrowing in two ways, that is, in two different forms." (Ibid 
p. 180.) 

" In the case of small depositors, a considerable part of the profit arising from the 
deposit of that money is the circulation of the notes. When a depositor withdraws 
his money from the bank, he receives it in the notes of the bank, and, of course, they 
go into circulation. As long as they remain out they are a source of profit." ( Com 
mons' Report, p. 45.) 

" The bank issue their notes two ways, — they make advances upon cash accounts, 
and they make advances upon discounts. They also issue their notes in payments 
upon accounts current, and also in the re-payment of deposit receipts." (Lords' Re- 
port, p. 236.) 

" The deposit and cash acconnts are the instruments for supporting our circulation, 
and without the continued operations upon the deposits and cash accounts our circu- 
lation cannot be maintained." (Ibid. p. 135.) 

III. Remittances to India. 

Although this branch of banking business is not peculiar to Scotland 
yet I believe the banks of Glasgow have carried it on to a greater exten\ 
than any other banks. This has arisen partly from the more intimate 
connection that exists between Glasgow and India, and partly from the 
character of Scotch banking. We refer to the practice of granting bills 
of exchange to be sent out to India, accompanied by an undertaking to 
accept them when presented. 

To enable our readers to understand distinctly this branch of business, 
we must give a short description of the banking and commercial opera- 
tions of India. The business transacted at each of the Presidencies con 
sists of importing British manufactured goods, and exporting the produce 
of the country, such as cotton, indigo, &c. Some of the merchants who 
are engaged in these operations act also as bankers. They receive de- 
posits, and allow interest on them, receive dividends on India stock, and 
make remittances to England. Their business in this way was formerly 
very extensive, but has recently been much reduced by the establishment 
of banks all over the country. One part of the business of these mercan 
tile bankers is to advance money on shipments of goods either to England 
or to China, taking as security the bill of lading and the policy of insur- 
ance. Here they often find a powerful competitor in the East India 
Company ; and f he mercantile interests, in both India and Glasgow, are 
desirous of excluding the Company from this kind of business. (See the 
Evidence taken before the Committee of the House of Commons on 
Commercial Distress, 1848.) 

I cannot better describe the kind of business carried on in India, than 

340 



Remittances to India. 

by the following extract of a letter I received about two years ago, in re- 
ply to some inquiries I made on the subject : — 

" One part of business which the houses used to do largely was advancing on ship- 
ment of goods to England and China, and it is still done by Messrs. 

and . The system is : — A. ships £ 10,000 worth of goods for Eng- 
land, and takes the bills of lading and policies of insurance to B., who agrees to ad- 
vance three fourths of the value ; the shipping documents are indorsed by A. to i?., 
and A- draws bills on the consignee of the goods in London for the value, in favor of 
B., payable at six months' sight, and directs him to accept the bills when presented by 
B.'s London correspondent. As the goods will most probably arrive in London be- 
fore the bills fall due, the consignee will take them up before the due date, and with 
the bills receive the shipping documents from B.'s correspondent. Sometimes, how- 
ever, it may be that A. has no agent in London, and the goods are therefore consigned 
to B.'s correspondent, who is instructed to sell and remit the proceeds by bills, or with 
the purchase money of the Indian goods to buy British manufactured goods, and ship 
them consigned to B. You will easily perceive what large profits could be realized in 
this way, as commission is charged on the sale of the Indian goods, and purchase of 
British, and a high rate of interest on the advance until it is paid off. 

" The East India Company usually get a portion of the money required for the 
home expenditure, from India, in this manner. Last month, the government here 
gave notice, that, in pursuance of instructions from the Court of Directors, it was pro- 
pose'd to provide a sum of £ 800,000 in India during the remainder of the official 
year 1846-47, for the service of the East India Company in London, by the purchase 
of bills of exchange to be secured by the hypothecation of goods. Advances in cash 
are accordingly made for the purpose by the governments of Bengal, Madras, and Bom- 
bay, at the rate of exchange of 2s. per company's rupee ; the operation is exactly the 
same as I have stated in the former case. A. ships goods, and, on the security of the 
bills of lading, policies of insurance, and his bills on consignees in London, at six 
months' sight, receives from the government an advance equal to three fourths of the 
value of the goods ; the bills, with the shipping documents attached, are sent to the 
India House ; and in due course accepted by the drawee ; on the arrival of the goods 
the bills are paid, and the goods given up. In the event of the ship arriving, and the 
bills not being taken up, the goods are then lodged in one of the Dock Company's 
bonded warehouses. If the bills are dishonored at the due date, the goods are sold 
to reimburse the East India Company for the advance ; this, however, is an extreme 
case, and could only occur in the event of the bankruptcy of the acceptor. 

" With reference to the bills drawn from India, with an engagement on the part of 
the drawee to accept, in the margin, these bills are obtained from a respectable Lon- 
don house, and sent out to this country for negotiation ; but I must have recourse 
again to my favorite plan of illustrating by an example. A. having credit with a 
London house, or, if not, lodges security, and obtains bills, with an engagement in the 
margin to accept, and remits them to B., his correspondent, in India, for the purchase 
of produce ; the drawee being well known, the bills obtain a favorable rate in the mar- 
ket, and B. is enabled to purchase produce, which he ships, consigned to A. in London, 
who, before the bills fall due, pays them ; on paying the London house commission on 
the amount, the transaction is concluded. 

" There is another system, and you very probably may have seen some of the bills in 
the London market. A , a merchant in New York, proposes to send a ship to China for 
goods, but unwilling to have his money locked up on board ship for so many months, 
with the additional risk of loss, he obtains, either on personal or other security, from 

say Messrs. 's agent in New York, a letter of credit on the house in 

London, to honor the bills of the captain or supercargo of the ship. On the arrival 
of the ship in China, the cargo is purchased and paid for by the bills on Messrs. 

, London : the bills are negotiated in China, with the indorsement 

of 's agent there, and as soon as A., in New York, receives advice of 

the same, he remits the amount to London, to meet the bills when they fall due. I 
inclose you a form of one of these American bills. Sometimes money is sent to India 

by means of London bankers' bills, and I have seen Messrs. 's bills 

offered for sale, but being drawn at short dates, do not obtain such good rates of ex- 
change as might be expected ; they are seldom used for commercial purposes, but are 

341 



A Treatise on Banking. 

taken by officers of the civil and military services, wishing to make remittances to 
their families at home. I understand that the Western Bank of Scotland issues bills 
with an engagement to accept. 

" This operation, as far as an exchange operation, of the banks issuing the bills, 
would not realize a profit sufficient to cover the risk. Suppose the London and West- 
minster Bank sent out to an agent here its bills at six months' sight, for £ 20,000 and 
that the bills are sold at 2s. per rupee ; the agent must then remit the rupees (200,000), 
which he has received, and even admitting that he could obtain good commercial bills 
at 2 per cent, under that rate, it would scarcely pay his commission on the transac- 
tion. 

" The usual way in which merchants settle their exchange operations in Bombay, 
and I believe it is the same all over the East, is by sending a notice to each house, in- 
timating that A. 8$- Co. have £ 10,000 to draw for on England ; A. fy Co. are called 
sellers. B #• Co. want to remit £ 5,000 to England, are called buyers, and offer for that 
amount of J.. Sf Co. bills ; C. $- Co. are also buyers, and offer for £5,000 more, so that 
the whole transaction is completed ; and unless a bank is prepared to buy up all the 
bills offered for sale, at the same, or a more favorable rate than a merchant can offer, 
it cannot carry on its exchange operations profitably, the merchants buying and selling 
among themselves, save all the bankers' charges. This, I imagine, has been the case 
in all countries before the system of banking operations was clearly understood ; and I 
have no doubt, but that in a short time we shall see all exchange business done by the 
banks." 

FORMS OF LETTERS OF CREDIT. 

To explain further this system, we shall transcribe the form of the bill 
referred to in the above letter, and also the forms of the bills issued by 
two banks at Glasgow. 

a % 8 ^ g <T £' No - 13 °- 



K ^ 53 *& 



o 



- 3» .8 *> *» New York > 7th June > 1842 - 



■? s S 7 s 



3 



^ § t-lt^r '^ Exchange for £Ster. 300 



6, 



tq ^ ? * | § ^ 2385 







Six Months after sight of this First of 
Exchange (Second and Third unpaid) pay to the order of Davis, 
g ^ H „ J3 fe h Brooks, fr Co. Three Hundred Pounds Sterling, value received, 

^S?^«.Sr? £ as advised by 

.y ^U -K> ,0 K( 

P^lS Your obedient servant, 

1 ts * S ^ ! GEO. D. CARTER.* 

.ai§K| to 

* d I'M s §■ 

jt §4 |^| 8 Messrs. Palmers, Mackillop, Dent, $• Co., 



cj CO 

* This bill is endorsed, " Pay George D. Carter, or order. — Davis, Brooks, $> Co." 



2 o k~8^ London. 

h ftili 



342 



Remittances to India. 



No. 



To 



for first of exchange. 
Western Bank of Scotland. 
18 



/ hereby engage to accept and to pay at Ma- 
turity, the first presented Bill of the set of 
Exchange, of ichich the annexed is the 
First, to be drawn by 
on the Western Bank of Scotland, on or 
before 

at Sixty days' sight, 
provided this Letter of Credit, as annexed 
to such Bill, be presented therewith and de- 
livered to me on acceptance thereof. 
For the Western Bank of Scotland, Glas- 
gow, Manager. 

THIRD OF EXCHANGE. 



Clydesdale Bank, Glasgow. 
To 

We hereby engage to accept and to pay 
at maturity the first presented Bill of the 
set of Exchange of which the annexed is 
the Third, to be drawn by you on us, on or 
before the for £ 

say Sterling, 

payable in London at a date not less than 

and not exceeding 
days' sight, provided this Letter of Credit 
be delivered to us on acceptance of the an- 
nexed Bill. 

For the Clydesdale Banking Company. 





Xo. 



Sixty Days after Sight, pay 
this First of Exchange (Second and Third 
of same tenor and date unpaid), to the or- 
der of 

at Messrs. Jones, Lloyd, 8p Co.'s, London, 
value received as advised. 

To the 
Western Bank of Scotland, 

Glasgow. 
No. 



15 



after sight pay this Third of 
Exchange (First and Second of the same 
tenor and date unpaid), to the Order of 



in London 

Value received as ndvised. 
To 



Sterling, 



The Bank of England had their attention called to this subject, and 
consequently issued expressly for remittance to India bank post bills drawn 
at sixty days' sight. The following account of this arrangement is taken 
from a city article of the Times : — 

11 Some inquiries having been made as to the origin of the bills at 60 days' sight> 
drawn by the Bank of England, alluded to the other day, and the mode in which the 
operation is conducted, the following information may be found acceptable : — 

" About the year 1836, the bills of the East India firms had been brought into tem- 
porary discredit by some failures which happened at the time, so that these bills did 
not find ready purchasers in the Bombay market. It was conceived, therefore, that a 
new sort of paper of unquestionable credit might be introduced into India with advan- 
tage, and nothing seemed more fitted for this purpose than bills made by the Bank of 
England, and payable by themselves. A resolution, passed in April, 1836, authorized 
the issue of the required paper, and since that time it has been in use. 

" And now, with respect to the mode of operation. A party who wishes to remit 
money to India applies to the bank by filling up the following form, to which a list is 
attached, and pays (of course at par) for the bills which he takes : — 

" ' To the Cashiers of the Bank of England. 

"'London, ,18 . 

request to be furnished with the undermentioned bills, at 60 days 
sight, in triplicate, amounting to £ , the firsts to be accepted and held by the 

X 343 



A Treatise on Banking. 

Bank of England, for the purpose of being delivered to the holders of the seconds or 
thirds, -whichever may be first presented.' 

" The bills so obtained are remitted to India, and have a peculiar advantage, which 
is expressed by the condition in the form that the ' firsts ' are to be accepted and held 
by the Bank of England. The paper which is drawn by a firm in India on London, is 
generally made payable at 60 days after sight, but the 60 days do not begin to ran till 
after their acceptance in London. The bank paper, on the contrary, being accepted at 
once, and held for the purpose of being delivered to the holders of the ' seconds ' and 
; thirds,' the 60 days begin to run from the date, and the bills are payable immediately 
on their return to London from India. This advantage and the unquestionable credit 
of the paper, often enable the holder to dispose of them at a good premium in the In- 
dia market in certain states of the exchanges, and thus they become, as it were, an ar- 
ticle of commerce. 

" Notwithstanding the advantages of this paper, it is not so commonly used as it 
might be imagined. This is attributed to the competition of some of the Scotch banks, 
who offer an inducement for the circulation of their own paper. The Bank of England 
pay no interest, treating the 60 days' bill just as they would treat an ordinary note, 
and have the use of the money paid during all the time that the bill is performing its 
voyage to India, is finding a customer in the Indian market, — a slow process in some 
states of the exchanges, — and is returning home. The Scotch firms, on the contrary, 
allow interest during this time, or a portion of it, and thus the capital of the holder 
does not lie completely idle. Hence a preference is, in many instances, given to the 
Scotch firms." 

IV. Regulations for Settling the Bank Exchanges at Edin- 
burgh. 

1. There shall be every Thursday morning an exchange of the notes collected on 
Monday, Tuesday, and Wednesday ; and every Saturday an exchange of the notes 
collected on Thursday, Friday, and Saturday. The balances struck on Saturday shall, 
with the Glasgow and country exchange receipts, be settled on Monday. The balances 
struck on Thursday shall be settled on the same day; and this settlement shall include 
the country exchange receipts of Wednesday, and the Glasgow exchange receipts of 
Thursday. The exchange on Saturday shall not be interrupted by holidays ; but on 
these occasions it shall commence at half past nine o'clock a. m. When Monday is a 
holiday, the settlement shall be made on Tuesday. 

2. When exchanges are established in provincial towns, the notes received at the 
exchanging agencies there must wait for the return of the next local exchange day ; 
and must, under no pretext, be forwarded to meet the exchanges in Edinburgh, or at 
the other agencies. 

3. All payments of balances shall be made in exchequer bills of £ 1,000 each, the 
thousands of the balance to indicate the number of exchequer bills ; it being under- 
stood, that Bank of Scotland, Royal Bank, or British Linen Company notes of £ 100 
each, or Bank of England notes of £ 100 and upwards, or gold, shall be employed to 
pay fractional parts of £ 1,000 only. 

4. The amount of exchequer bills to be kept in the exchange circle is apportioned as 
follows : — 

Western Bank . . £24.000 

Clvdesdale Bank . . . 12,000 
Edinburgh & Glasgow Bank 12,000 
City of Glasgow Bank . . 12,000 

£ 204,000 

5. Exchequer bills put into the circle, to be filled up, payable to the banks which 
have originally contributed them, and to be blank indorsed when first paid away. 
They shall be registered before they are put into the circle, in a book kept in the Bank 
of Scotland for the purpose, and shall bear the distinguishing mark of " Edinburgh 
Exchange Bill," affixed by the Bank of Scotland, showing that they belong to the Ed- 
inburgh exchanges, and are not to be used for any other purpose whatever. 

344 



Bank of Scotland . 


. £ 24,000 


Royal Bank 


. 24,000 


British Linen Company 


24,000 


Commercial Bank 


. 24,000 


National Bank 


24,000 


Union Bank 


. 24,000 



Scotch Exchange System. 

6. All the exchequer bills placed and retained in the exchange circle to bear a uni- 
form rate of interest, and shall be paid and received in the exchanges at their nominal 
par value, with the interest accrued ; and when they are withdrawn, in consequence of 
being called in, or from an alteration in the rate of interest, a voucher in the form an- 
nexed (Schedule A) shall be issued for each exchequer bill by the banks by whom 
they were provided to pass as such, till replaced by the new bills in course of post af- 
ter they are issued from the exchequer. 

7. As exchequer bills may be expected to accumulate occasionally with some of the 
banks, while the stock of others is exhausted or becomes low, the parties holding the 
greatest amount of bills shall be bound to sell to the parties in want of them, who 
shall, on the other hand, be obliged to buy; but the holders shall not be required to 
reduce their stock of exchequer bills, by selling below an excess of two thirds over 
their original quota, unless necessary for the settlements ; and parties whose stock of 
bills is short shall not be required to purchase more than will make up their stock to 
one third of their original quota. 

8. Purchasers of exchequer bills shall buy from parties holding the largest propor- 
tional amount, with reference to their original quota, and two thirds more ; and the 
party holding the largest proportion shall have a continued preference in selling to one 
or more purchasers, until the stock of the selling bank is reduced to two thirds above 
their original quota, when the next largest proportional holder at the time shall have 
the preference, and so on. 

9. Exchequer bills bought shall be paid for by drafts on London bankers at five 
days' date ; and the purchasers of exchequer bills shall pay, in addition to the princi- 
pal sums in the bills, the growing interest, at the rate allowed by the exchequer, up to 
the date of the drafts falling due in London, and shall furnish stamps for the drafts. 

10. Transactions in the purchase and sale of exchange bills may be made on either 
of the settling days in the week , but they shall be made only in the exchange-room, 
and solely for the settlement of the exchange; and no private transactions of this kind 
between bank and bank shall be permitted, so that the number of exchequer bills in 
the hands of any one party after the exchanges are so settled shall be the number re- 
turned on the next exchange day. 

11. In the event of any exchange draft being dishonored, without prompt and most 
satisfactory explanation of the cause, the bank issuing such draft shall be immediately 
excluded from the clearing-room, and their notes shall be refused in all future transac- 
tions with the public. 

12. The exchanges shall be made alternately ; on Thursdays in the Bank of Scot- 
land, and on Saturdays (with the relative settlement on Mondays) in the Royal Bank ; 
and these banks will undertake to receive from the banks which are debtors, and to 
pay to the banks which are creditors in the exchanges, the exchequer bills, Bank of 
England and other notes, and gold, which are passed in payment of the balances ; but 
the Bank of Scotland and the Royal Bank shall not, nor shall either of them, be in 
any way responsible for the exchange transactions, nor otherwise soever. 

13. The clerks of the different banks shall appear in the clearing-room at ten o'clock 
a. m. on Thursdays and Saturdays, and, before the exchange operations commence, 
they shall write down, on the board allotted for the purpose, the amount of exchequer 
bills held by the banks they represent ; and after the balances are struck and ascer- 
tained on the settling days," tney shall mark on the same board the exchequer bills 
which will be in their hands after the balances are settled by the Bank of Scotland and 
Royal Bank ; and this is to be considered the number on which all transactions in the 
purchase and sale of exchequer bills for that day shall be founded. 

14. After the balances are struck on Thursdays and Mondays, statements of the 
same shall be conveyed to the respective banks by then- own clerks, who shall afterwards 
attend in the clearing-room, to pay and receive the balances due, at half-past eleven 
o'clock on Mondays, and at half-past three o'clock on Thursdays, after the vouchers of 
the balances of the Glasgow exchange of that day are received. These are to be con- 
veyed, by a special messenger, from the Glasgow banks of issue alternately, and to be 
delivered by him personally at the banks to whom they are addressed in Edinburgh. 

15. The British Linen Company having, from a desire to promote the general con- 
venience, consented to forego the advantage they have hitherto enjoyed of making 
their whole exchanges with banks junior to themselves within their own office, no cer- 
tified statements of their separate exchanges will henceforth be necessary. 

16. The seventh and eighth regulations will tend, in a great degree, to equalize the 

345 



A Treatise on Banking. 

amount of exchequer bills among the different banks ; but as it may possibly hap- 
pen, notwithstanding, from some peculiar state of the exchanges, that exchequer bills 
may accumulate in the hands of one bank to a considerable amount beyond its quota 
and two thirds more, without the power of sale to any other bank, according to the 
above regulations, then that bank, when the amount on hand exceeds fifty-seven, may 
require the bank holding the fewest number, although not under one third of their quo- 
ta, to purchase up to their quota, and so on to the next lowest, until the stock of the 
selling bank shall be reduced to the original quota and two thirds more. 

17. The annexed Schedule will be the guide to distinguish the extreme points, in 
terms of the seventh and eighth regulations, at which sales and purchases of exchequer 
bills are to proceed. 

18. All the exchanging banks shall have free access, at such times as may be con- 
venient, to the record of the exchange transactions. 

19. The subscribers, having framed these regulations with the view to keep the 
circulation of Scotland in a sound state, as well as to give facility in the settlement of 
their balance of notes issued in the fair way of business, and being of opinion that it is 
discreditable in a bank of issue to force its notes into circulation, by exchanging them 
for other notes in the circle, they resolve to check and discourage any such irregular 
issues by every means in their power. 

20. It is further understood and agreed, in consideration of the circulation of each 
bank (other than what may be issued against gold and silver coin) being fixed and lim- 
ited, by the Act 8 & 9 Vict. c. 38, that the banks shall bring to the exchange-room 
regularly, at their head office and agencies, all the exchangeable notes which they re- 
ceive, and that under no circumstances shall any bank issue the notes of another bank 
of issue in Scotland without permission first asked and obtained. 

21. The parties to this agreement shall be entitled to withdraw from it, and to re- 
ceive back their exchequer bills at their par value, with accruing interest, on giving 
three months' notice. 

Edinburgh, Feb. 16, 1846. 

Alex. Blair, for the Bank of Scotland. 

Robert Stm Wilson, for the Eoyal Bank of Scotland. 

Tho. Corrie, for the British Linen Company. 

Robert Paul, for the Commercial Bank of Scotland. 

George Crosbie, for the National Bank of Scotland. 

Saml Hat, Cashier, for the Union Bank of Scotland. 

Peter Ramsay, for the Western Bank of Scotland. 

William Elemming, Manager, Edinburgh, for the Clydesdale Bank. 

Arch. Bonar, for the Edinburgh & Glasgow Bank. 

Robert Bell, for the City of Glasgow Bank. 

VI. — Exchange Banks, and Exchange Companies.* 

As these institutions exist only in Scotland, they may fairly be classed 
among the banks of Scotland. At the period they originated I wrote the 
following letter to the late Patrick Maxwell Stewart, Esq., M. P. for Ren- 
frewshire, who had asked my opinion on the subject. This letter was af- 
terwards published in the Railway Herald. 

" In compliance with your request, I will now give you my notions re- 
specting the new Exchange Banks recently formed in Scotland. 

1. A division of labor among banking institutions is by no means a new 
idea. There is scarcely any bank that carries on every branch of the bu- 

* Note by American Publisher. — Those who are curious as to the system of the Ex- 
change Bank System of Scotland, and the recent failure of these banks, are referred to 
the Bankers' Magazine, published at Boston, pp. 249-251, and 298-301, in which the 
able views of the London Atlas and the London Bankers' Magazine are fully given 
upon this subject. 

346 



Scotch Exchange Banks. 

siness of banking. The dealing in foreign exchanges, which forms so 
)arge a portion of the business of Continental bankers, is quite unknown 
to English bankers ; it is confined to merchants, or to large moneyed 
houses, like the Messrs. Rothschild. In London, the West-end bankers, 
as Messrs. Coutts and Messrs. Drummond, do not discount commercial 
bills, but confine their advances to mortgages, as their connections lie 
chiefly among the aristocracy ; while the city bankers look on mortgages 
with horror, and make their advances by the discount of bills and short 
loans on personal security. Loan Banks, or Monts de Piete, have been 
in existence for several centuries as a distinct branch of business, 
and loan societies are now sanctioned with us by Act of Parliament. 
Some London bankers do not take the agency of country banks, while 
the agency of colonial and foreign banks is often taken by mercantile 
houses, who carry on no other part of the business of bankers. I might 
add to these illustrations, but these are enough to show that division of la- 
bor among banking institutions is accordant with every-day practice, and 
therefore the new exchange banks, in marking out for themselves a par- 
ticular line of conduct, cannot be charged with any deviation from ac- 
knowledged principles. 

2. But then comes the question, Is the particular department of bank- 
ing marked out for themselves by the new exchange banks sufficiently ex- 
tensive to justify the formation of banks for that particular department, and 
also sufficiently lucrative to justify the anticipation of profit to the share- 
holders ? With regard to the extent, there can be no doubt that, from the 
formation of railways, and the multiplication of companies of all sorts, 
those kinds of securities on which commercial banks do not like to make 
advances are largely on the increase. It is likely, too, that these ex- 
change banks would attract much business in the way of advances on 
goods, &c, which is now done by brokers or individual capitalists. With 
regard to profit, it is well known that loans on the kind of security taken 
by the exchange banks are always charged a higher rate of interest than 
commercial bills. 

3. One reason for the formation of banks to take up this particular line 
of business is, that it requires a peculiar kind of knowledge in the mana- 
ger. He must make himself acquainted with certain points of law con- 
nected with shares, with the value of all shares in the market, the history 
and prospects of each company, the law and practice with regard to bond- 
ed goods, and other matters that do not usually come under the notice of 
the manager of a commercial bank, and the knowledge of which he 
could not readily acquire and maintain without neglecting other matters 
of, to him, greater importance. 

4. Although the rate of interest obtained by the exchange banks will 
be higher than what is termed the market rate, yet it will be affected by 
the market rate, and hence I think an exchange bank cannot yield a 
high dividend to its shareholders, unless it transacts a large amount of busi- 
ness. The only deductions from the interest received must be the ex- 
pense of the establishment. Every commercial man knows that a large 
establishment can be conducted with a less proportional expense than a 
small one. To conduct even a small business with safety, an exchange 

347 



A Treatise on Banking. 

bank must have a first rate manager ; but as the business increases, the 
same manager transacts the increased business, and the chief increased 
expense is in the number of clerks. In a large bank the expense may- 
form a small proportion to the profits ; in a small bank the expense may 
equal the profits, or even exceed them. To do a large business, of course 
an exchange bank must have a large capital. 

5. After a while, these exchange banks may obtain funds beyond their 
own capital. The commercial banks obtain such funds by the issue of 
notes, the balance of drawing accounts, lodgments on deposits, and the 
issue of drafts on London and elsewhere. None of these means are 
adapted for exchange banks, except the lodgments on deposits. After 
they are better known to the public, perhaps they may be able to receive 
deposits for three, six, or twelve months certain, on which they may afford 
to allow higher interest than is allowed by the commercial banks. Possi- 
bly some persons may prefer lending to these banks on liberal interest 
rather than lending on mortgage. Any large extent of this business 
would, of course, add proportionably to the profits of the bank. 

6. I know of no better form of government for an exchange bank than 
a board of directors and a manager. Commercial banks find a large 
board useful, as the number of directors exalt the bank in public estima- 
tion, and extend its influence, but with an exchange bank a small number 
of efficient directors would be preferable. But all banks should avoid 
what are called " managing directors." A manager is selected because 
he has had a banking education, and has obtained banking experience. 
Over him are placed two directors, who have had no banking experience. 
The manager is thus reduced to a clerk, and having neither power nor 
responsibility, he has no stimulus to exertion. The managing directors 
being members of the board, their brother directors do not scrutinize their 
acts so closely as they would the acts of the manager. These other di- 
rectors thus become ciphers. A bank thus governed resembles a private 
bank with two partners, with this difference, that the private bankers un- 
derstand their business, and deal with their own money. The main ob- 
jects of managing directors are to direct the manager, and to manage the 
directors. Most of the English joint-stock banks that have gone astray 
have been either constitutionally or practically governed by managing di- 
rectors. The great object of the exchange banks should be to manage 
their affairs prudently ; though a large business is essential to good profit, 
yet they should not attempt a large business with a small capital. Let 
them get a large paid-up capital first, and the large business will come of 
course. The main danger to which they are exposed is, that they may 
attempt to get on too fast. 

7. An obstacle to the progress of these banks is the stamp duties on 
the transfers of shares. I trust these and all other banks and companies 
will use their influence to get these duties abolished. In political economy, 
there is no proposition capable of clearer demonstration than that domestic 
taxes on the transfer of property are pernicious. Our Government seem 
to have recognized this principle last session in their spontaneous surren- 
der of the auction duties. There is no more reason in laying a tax upon 
the sale of railway shares than there would be in laying a tax upon the 

348 



Scotch Exchange Banks. 

sale of iron and timber. It will be a happy thing if the formation of ex- 
change banks should have the effect of causing these taxes to be repealed. 
You will perceive from what I have written that my opinions are in 
favor of these exchange banks. Presuming they will be well managed 
(for without good management no bank can succeed), I think they will be 
found profitable channels for the employment of capital, and after a while 
may worthily take their place side by side with the other banking estab- 
lishments of Scotland." 

The following extracts, from a letter addressed in March, 1847, by 
George Kinnear, Esq., the manager of the Glasgow Commercial Ex- 
change Company, to Alexander Blair, Esq., the treasurer of the Bank of 
Scotland, point out the difference between the business of those compa- 
nies and that of the Commercial Banks : — 

" The advances of exchange companies are all made, irrespective of commercial 
credit, on the security of shares in joint-stock companies. Although these shares pre- 
sent the most undeniahle and complete security, they do not present what all prudent 
bankers understand by a legitimate banking security. Every banker knows that he might 
as well devote his funds to lending over land as over shares ; that when he does so, he 
in reality abstracts his funds from banking, and to that extent loses his banking power ; 
and that, just in proportion as he does so, he must be prepared to give up his commer- 
cial business. 

" It is this which has induced prudent bankers, not only in Scotland, but everywhere 
else, to repudiate such transactions as inconsistent with the prosperity of their commer- 
cial business. They do occasionally lend a customer over his shares, as they also oc- 
casionally lend a customer over the security of his title deeds, but they regard both as 
equally foreign to their legitimate business, and are well aware that if they practised 
either for any length of time they would ruin their legitimate commercial trade." 

" The Commercial Exchange Company allows interest at 5 per cent, on deposits for 
six months certain, and repayable at three months' notice. The Bank of Scotland 
allows interest at 4 per cent, on deposits repayable at call. I may appeal to any re- 
spectable banker, bill broker, or money dealer of any kind, if a difference of one per 
cent, per annum is too much between money for nine months certain, and money at a 
moment's notice ? I maintain that it is not ; and that the extra one per cent, which 
we pay is justly due on account of the superior character of the article which we re- 
ceive." 

" The whole of the money lent by the Commercial Exchange Company is at the 
rate of 6£ per cent, per annum, and is lent for six months at a time. On all six 
months' paper the Bank of Scotland charge 6 per cent., so that the Commercial Ex- 
change charge only one half per cent, more than the Bank of Scotland. Nor is this 
half per cent, charged for nothing ; as the bank has no trouble in taking bills at six 
months, while the Exchange Company has the trouble and risk of taking over securi- 
ties, and of renewing and changing them for the parties as they may desire." 

" The Exchange Company allows 5 per cent, for money, and charge 6£ per cent., 
making a fixed difference in favor of the company of 1 i per cent. The Bank of Scot- 
land allows on current accounts 3£ per cent., on deposit receipts 4 per cent., and 
charges on bills under four months 5 per cent., and above four months 6 per cent. ; 
making a difference in favor of the bank varying from one per cent, up to 2^ per 
cent." 

" The directors of the Commercial Exchange Company have allowed to the public 
5 per cent, on money deposited with them ; and they have done so, although the Bank 
of Scotland and the Royal Bank only allow 4 per cent." 

" If money, repayable on demand, be worth to these banks 4 per cent., it follows as 
a matter of course, that money for six months certain, and repayable at three months' 
notice, ought to be worth 5 per cent." 

" I beg of you to recollect what class of people it is who are the great majority of 
depositors. Mostly persons incapable of working, — maiden ladies, widows, and or- 
phans, — people incapable of making the most of their money for themselves, — nay, 

349 



A Treatise on Banking. 

most of them, either from their sex or their ignorance of business, hardly capable of 
judging where their money is safe. 

" It is a very great pleasure to me to know that the establishment of the exchange 
companies has been of great service to this class of persons. Hundreds of persons of 
moderate means have had their comforts increased, by the increased interest they thus 
derive from the money, on the produce of which they are obliged to live ; and I rejoice 
to believe, that thousands will yet enjoy similar benefits." 

" The exchange companies no more compete with banks than do the river trusts, 
harbour trusts, railway companies, road trusts, and other public undertakings, who bor- 
row money for lengthened periods. There is, in fact, no possible room for jealousy or 
competition between banks and exchange companies, for there is no business under- 
taken by the one which could be accepted of by the other with any safety or propriety. 
You will yourself acknowledge that the Bank of Scotland could not afford to receive 
money on deposit for nine months certain at 5 per cent. ; and I assure you the Com- 
mercial Exchange Company could not afford to give 4 per cent, for money at call.'' 

" We do not, in the smallest degree, injure or interfere with the prosperity of com- 
mercial banking ; on the contrary, the establishment of exchange companies must have 
given a very acceptable apology to prudent bankers for declining to make advances to 
their customers on securities, which (although quite good in themselves) are as foreign 
to prudent banking as advancing money on mortgage over land." 

" What you call evils are in fact great public benefits. First, by conferring substan- 
tial advantages on a certain class of depositors ; and secondly, by enabling the internal 
improvements of the country to be carried out with an ease and rapidity which could 
not otherwise be attained." 

The Exchange Banks and Companies that have been formed in Scot- 
land are the following : — 

1. The Exchange Bank of Scotland, at Edinburgh. 

2. The Commercial Exchange Company, at Glasgow. 

3. The Union Exchange Company, at Glasgow. 

4. The National Exchange Company, at Glasgow. 

5. The Glasgow Exchange Company, at Glasgow. 

6. The West of Glasgow Exchange Company, at Glasgow. 

1. The Exchange Bank of Scotland. — This bank has a charter under 
Sir Robert Peel's Act of 1845. Its paid up capital is £ 350,000, and it 
has about £ 400,000 deposits. It cannot issue notes. In making pay- 
ments it issues the notes of the City of Glasgow Bank. It has paid a 
dividend of 6 per cent. 

2. The Commercial Exchange Company. — This bank has no charter. 
It was established before the passing of the Act of 1845, but not regis- 
tered until after the passing of the Act. It has since registered, and 
hence the directors consider that they are entitled to carry on business as 
a bank without a charter. The extracts we have made from the pam- 
phlet of Mr. Kinnear, the manager of this bank, will show the principles 
on which it is conducted. 

3. The Union Exchange Company of Glasgow, does not profess to be 
a bank at all, and hence avoids the question of a charter. At a special 
general meeting of shareholders, held in November, 1846, it was resolved 
" that the word ' banking ' be omitted from the name or firm of the Com- 
pany, as prescribed by the first article of the contract of copartnery, and 
from the description of companies referred to in the third article of said 
contract ; and that a special declaration be added to the said third clause 
of the said contract, that it has not been, and does not form any part of 

350 



Scotch Exchange Banks. 

the business of the company to make advances simply on personal secu- 
rity, unaccompanied by the collateral security of real or personal proper- 
ty." Its paid-up capital is about £ 250,000, on which it has paid a divi- 
dend of 7J per cent. 

4. The National Exchange Company. — This company has been very 
unsuccessful. It commenced in the year 1845, and got into difficulties at 
the end of 1847. Their first paid up capital was £ 2 10,790. They have 
since made a call of £ 2 a share more, on 57,000 shares, to enable them 
to meet their liabilities. 

5. The Glasgow Exchange Company began business in 1847, and 
wound up creditably in 1848, returning to their shareholders 4s. per share 
more than they had paid up. 

6. The West of Scotland Exchange Investment Company is winding 
up its affairs, and is expected to return to its shareholders nearly the 
whole of its paid-up capital, — about £ 120,000. 

The losses that have fallen upon exchange companies seem to have 
arisen mainly from the great reduction that has taken place in the price 
of railway shares. The following observations of the directors of the 
Glasgow Exchange Company, with reference to the prosecution of their 
business, appear very just and impartial : — 

" The directors will first state the negative view of the question. From the nature 
of the transactions which form the general business of exchange companies, their suc- 
cess depends chiefly upon a high state of the prosperity of the country, and particularly 
of railway enterprise. The main object of nearly all who enter into such transactions 
is to realize the benefits of an expected augmentation of the value of the stock ; the 
business, therefore, is necessarily attended with risk, and though that risk may be 
guarded by what appears an ample margin, recent experience has shown that this has 
not been a sufficient precaution. 

" The directors' short experience may not give much weight to their opinion ; but it 
appears to them to be essential to the profitable management of the company's business, 
that it should possess, in addition to. its own capital, a considerable amount of money 
in loans from the public. The employment of such money is the chief source of the 
profit of banking companies, and this advantage is still more required by exchange 
companies. To command a share of such loans, this company must possess the confi- 
dence of the public : what might tend to infuse this confidence would be a large paid- 
up capital ; but although this would be quite requisite, if the business is to be earned 
on, yet it is doubtful how far it would remove the strong prejudice which has taken 
possession of the public mind against exchange companies, — a prejudice which is a 
good deal mixed up with the injurious effects to individual fortunes which recent bank- 
ruptcies have disclosed, as arriving out of transactions with exchange companies. 

" The directors will now state what has occurred to them in favor of prosecuting the 
business. 

" The magnitude of railway stock in this country is so great, that it may be fairly 
concluded it will always form a subject of extensive dealings, and that, therefore, there 
will always be a large field on which business may be cultivated. In ordinary times, 
the risks attending the business of the company would not be much ; and it is not to 
be expected that a period such as has just been passed, distinguished by extraordinary 
vicissitudes in the value of public securities, will often occur. 

"The prejudice which exists against such companies at present, time may remove, 
for it does not appear to the directors that the grounds of that prejudice rest on any 
principle that would not apply to any other joint-stock company ; but it is not to be 
concealed that the existence of this prejudice will be an obstacle, for a time, to the fa- 
cility of increasing the paid-up capital, and the increase of loans from the public, 
both essential to the profitable results of the business." 

351 



A Treatise on Banking. 



Section VII. — THE BANKS OF IRELAND. 

The last Act of Parliament for regulating banks in Ireland is the 8 & 9 
Vict. cap. 37, passed in the year 1845. 

This Act recites that by the Act 21 & 22 Geo. III. an act was passed 
for establishing a bank by the name of the Governor and Company of the 
Bank of Ireland ; and which prohibited any other company consisting of 
more than six persons to issue notes payable on demand or within any 
time less than six months. That by the Act 1 & 2 Geo. IV. cap. 72, 
other companies consisting of more than six partners might issue notes 
payable on demand, at a greater distance than fifty miles (Irish) from Lon- 
don. And that by 6 Geo. IV. cap. 42, and 1 Wm. IV. cap. 32, such 
co-partnerships of bankers might transact certain matters of business by 
agents in Dublin, including the payment though not the issue of notes. 

The Act further recites that the Bank of Ireland had at various times 
advanced for the public service, the several sums of £ 600,000, £ 500,- 
000 and £ 1,250,000 late Irish currency ; and that by the 48 Geo. III. 
cap. 103, the charter of the Bank of Ireland was extended to the first day 
of January, 1837, — upon twelve months' notice to be published in the 
Dublin Gazette, and after the repayment of the above-mentioned sums. 
And that by the Act 1 & 2 Geo. IV. cap. 72, the Bank of Ireland had 
agreed to advance a further sum of £ 500,000, and the bank was em- 
powered to enlarge their capital to £ 3,000,000 ; making the total ad- 
vances .£2,850,000 late Irish currency, equal to .£2,630,769 4s. Sd. 
sterling money of the United Kingdom of Great Britain and Ireland ; on 
which, by the Act 3 & 4 Vict. c. 75, the bank received an annuity from 
the Government of £ 115,384 12s. Ad. sterling, payable on the 5th of 
January and 5th of July in each year, redeemable upon six months' no- 
tice, to be given after January 1st, 1841, and after payment of the above- 
mentioned sums. 

The Act further recites, that the above annuity of £ 115,384 12s. Ad. 
has, with the consent of the said governor and company, been reduced 
to £92,076 18s. 5d., being at the rate of 3^ per cent, per annum on the 
capital sum of £2,630,769 4s. 8d., which capital sum shall not be re- 
paid until the expiration of six months' notice, to be given after January 
1st, 1855 ; and that, during such term, the said governor and company 
shall manage the public debt free of all charge. The company is to con- 
tinue a corporation, for the purpose of carrying on the business of bank- 
ing, but not to have any exclusive privileges. The charter to continue 
until the expiration of twelve months' notice to be given, and published 
in the Dublin Gazette, after January 1st, 1855, and upon repayment of 
the sums due from the Government to the bank. 

The Act removes-, from the 6th day of December, 1845, all restric- 
tions upon banks having more than six partners issuing notes and carry- 
ing on business in Dublin, and within fifty miles thereof. But no banker 
shall issue any larger amount of notes than the average amount he had 
in circulation during the year ending the first day of May, 1845, (which 
amount shall be certified by the Commissioners of Stamps,) and the 

352 



The Banks of Ireland. 

amount of gold and silver coin he may have in his hands, in the propor- 
tion of not more than one fourth of silver to that of gold. 

In case two banks should unite, the new bank to have the power of is- 
sue to the amount of both the united banks. Any bank may arrange 
with the Bank of Ireland to give up its issue ; and in that case the Bank 
of Ireland may increase its issue to that amount. But the bank that thus 
contracts shall not afterwards resume its issue. All notes for a fractional 
part of a pound are prohibited. Each bank issuing notes is required to 
send to the Stamp-office weekly returns, stating the amount of notes in 
circulation on each Saturday, distinguishing those below £ 5 ; and also 
the amount of gold and silver coin held at each of the head offices or prin- 
cipal places of issue in Ireland. And from these returns the Commis- 
sioners of Stamps and Taxes shall make a monthly return, which shall 
be published in the Dublin Gazette. This monthly average must not 
exceed the amount certified by the commissioners and the amount of gold 
and silver on hand. 

All banks are required to send a list of their shareholders to the 
Stamp-office, every year, between the 1st and the 15th of January, to be 
published in the Dublin Gazette before the first day of the succeeding 
March. All banks, whether they issue notes or not, are entitled to sue 
and be sued in the name of their public registered officer. 

Upon the Act of 1845, for the Regulation of Banks in Ireland, we may 
observe : — 

1. The authorized issue is like that of the banks of Scotland, the aver- 
age amount of the year ending on the 1st day of May, 1845. 

2. If any two banks unite, the new bank may issue to the amount of the 
circulation of both the united banks. Here the law is the same as that of 
Scotland, but different from that of England. 

3. If any bank gives up its issue, and agrees to issue Bank of Ireland 
notes, the Bank of Ireland may increase her authorized issue to the full 
amount of the issue of the bank whose notes are withdrawn. In Eng- 
land, the Bank of England can, in a similar case, issue only to the extent 
of two thirds of the issue of the bank whose notes are withdrawn. There 
is no similar provision in the Act referring to Scotland. 

4. Another difference may be noticed between Ireland and Scotland. 
All the notes issued at the branch banks in Scotland are payable only at 
the head office of the bank that issued them. In Ireland all the notes are 
legally demandable in gold at the branches where they have been issued. 
Hence the banks in Ireland must keep some gold at every branch, while 
the banks in Scotland need not have any gold except at the head office. 
In both countries, the banks must hold a stock of gold equal to the amount 
of notes in circulation beyond the authorized issue : and, according to 
the Act, this gold must be at the head office, or chief place of issue. The 
gold held at the branches, however necessary for business purposes, is 
not taken into account in the returns to the Stamp-office. The banks, 
indeed, return the whole amount of the gold in their possession ; and it is 
this which is published in the newspapers. But the amount held against 
the excess of authorized issue must be held at the chief office, or other 
chief places of issue. In the Provincial Bank of Ireland these places are 

353 



A Treatise on Banking. 

Cork, Limerick, Dublin, and Belfast. They are desirous of having in ad- 
dition, Waterford and Sligo. (Mr. Murray's Evidence, Lords, 4279.) 

The banking institutions of Dublin are the Bank of Ireland, which is a 
chartered bank, like the Bank of England. It is the Government bank. 
It issues notes, and has branches in the principal towns throughout Ire- 
land. It has now no exclusive privileges. 

The Provincial Bank of Ireland, and the National Bank of Ireland 
These are joint-stock banks that issue notes, and have numerous branches. 
These two banks are governed by boards of directors, who meet in Lon- 
don. 

The Hibernian Bank, and the Royal Bank of Ireland. These are 
joint-stock banks, that do not issue notes, and have no branches, except 
that the Hibernian Bank has a branch at Drogheda. 

The private banks of Messrs. La Touche & Co., Messrs. Ball & Co., 
and Messrs. Boyle, Low, Pirn, & Co. 

There are three joint-stock banks at Belfast, all of which issue notes 
and have branches. They are the Northern Bank, the Belfast Bank, 
and the Ulster Bank. 

There is also a joint-stock bank at Tipperary, which does not issue 
notes, but has several branches. 

The Bank of Ireland. 

In tracing the history of banking we may observe that most public 
banks have been formed, in the first instance, under the protection of the 
Government of the state in which they were established. Such was the 
case with the banks of Venice, Genoa, and Amsterdam ; and such, too, 
was the case with the banks of England, of Scotland, and of Ireland. 
The former were closely connected with the state, and may properly be 
called " State Banks " ; the latter had peculiar privileges bestowed by 
charter, and are usually called " Chartered Banks." These privileges 
may be divided into two classes, those which refer to the proprietors them- 
selves, and those which refer to other parties. The privileges of the 
first class relate to the amount of capital, the form of government, the 
number of the directors, and the mode of their nomination, the meeting 
of the proprietors, and the specification of the branches of business the 
bank are allowed to carry on. The privileges of the second class refer 
to the restricted liability of the shareholders, and the prohibition of other 
parties carrying on the same business. 

If the charters granted to banking companies referred' only to the first 
class of privileges, they would be liable to but little objection. In the 
infancy of commerce and of banking, the assistance of the government 
may with propriety be granted to encourage the formation of institutions, 
60 eminently calculated to promote the public advantage. But of what 
avail are prohibitory clauses ? If no other persons are disposed to form 
similar institutions, then those prohibitions are a nullity. But if other 
parties are disposed to form similar companies, without the assistance of 
the Government, then why should the Government interfere at all ? Why 
should tney grant a charter to effect an object which can be effected with- 
out their assistance ? 

354 



The Bank of Ireland. 

In the charter first granted to the Bank of England in 1694, there 
was no prohibitory clause. But when the charter was renewed in 1708, 
it was enacted that no other company formed of more than six persons 
should carry on the business of banking in England. The charter grant- 
ed to the Bank of Scotland, in 1695, contained the following prohibition, 
— "That for the period of twenty-one years from the 17th of July 1695, 
it should not be lawful for any other persons to set up a distinct company 
or bank within the kingdom of Scotland." This privilege was not re- 
newed after the expiration of the twenty-one years ; and in the year 
1727, a charter, without any prohibitions, was also granted to the Royal 
Bank of Scotland. In the year 1746, the British Linen Company was 
formed, and carried on the business of banking as a joint-stock company. 
Subsequently this bank also obtained a charter, but without any exclusive 
privilege. Hence Scotland has had the advantage of chartered banks, 
and joint-stock banks, and private banks, all working well together with- 
out producing those effects which in this country have followed the prohib- 
itory clauses of the charter of the Bank of England. 

Both in its constitution and government the Bank of Ireland closely im- 
itated the Bank of England ; and it has produced in Ireland most of the 
advantages and evils which that establishment has produced in this coun- 
try. It has supplied the country with a currency of undoubted solidity ; 
it has supported public credit, it has granted facilities to trade, and it has 
assisted the financial operations of the Government. On the other hand, 
its prohibitory clause necessarily led to the formation of many private 
banks, whose failure was the cause of immense wretchedness to all classes 
of the population. 

The charter of the Bank of Ireland contained a clause, which prevented 
more than six persons forming themselves into a company to carry on 
the business of banking in Ireland. In the year 1824, they surrendered 
this exclusive privilege, as far as regard those places which are situated 
at a greater distance than fifty Irish miles from Dublin ; and in 1826, the 
Bank of England made a similar surrender, with regard to places at a 
greater distance than sixty- five miles from London. As eleven Irish miles 
are equal to fourteen English miles, fifty Irish miles are equal to about 
sixty-five English miles. But it must be observed, that Dublin is situated 
on the sea-coast, therefore, the Bank of Ireland had only the monopoly 
of a semicircle, whose radius is fifty Irish miles. But London, being 
situated inland, the Bank of England had the monopoly of a whole cir- 
cle of 130 English miles in diameter. 

The Bank of Ireland was established by an Act of Parliament passed 
in 1782, 21 & 22 Geo. III. cap. 16. The following are the provisions 
of this Act : — 

The capital was £ 600,000, which was lent to Government at 4 per 
cent. No one person was permitted to subscribe more than £ 10,000. 
If the bank incurred debts to a greater amount than their capital, the sub- 
scribers were answerable in their private capacity to the creditors in pro- 
portion to their subscriptions. The bank were not either to borrow or 
to lend money at a higher interest than 5 per cent., nor to engage in 
any business but banking. T^he stock to be transferable, and deemed 

355 



A Treatise, on Banking. 

personal estate, and as such to go to the executors of the holders, and 
not to their heirs. No transfer of bank stock to be valid, unless regis- 
tered in the bank books, in seven days from the contract, and actually- 
transferred in fourteen days ; the charter to expire at twelve months' no- 
tice after the 1st day of January, 1794, and repayment of all sums due 
by the Government to the bank. 

The charter is dated May 15, 1783, and contains as follows : — Such 
persons as should subscribe before January 1, 1784, the sum of .£600,000 
were to be formed into a corporation, to be styled the Governor and 
Company of the Bank of Ireland ; the corporation were to have a gov- 
ernor, deputy-governor, and fifteen directors ; which governor, deputy- 
governor, and directors, or any eight or more of them, shall be called a 
Court of Directors, for the management of the affairs of the corporation. 

Fifteen directors shall be chosen annually, between March 25 and 
April 25 in each year, and not above two thirds of the directors of the 
preceding year to be reelected. 

The notice for the meeting of general courts of proprietors to be affixed 
upon the Royal Exchange in Dublin at least two days before the time of 
meeting. The qualification for a voter at a general court shall be £ 500 
stock, to be held for six months preceding, unless it came by will, mar- 
riage, &c. The qualification for Governor shall be £ 4,000 stock, and for 
deputy-governor £ 3,000, and for director £ 2,000. 

No dividend shall at any time be made by the said governor and com. 
pany, save only out of the interest, profit, or produce, arising by or out 
of the said capital, stock or fund, or by such dealing, buying, or selling, 
as is allowed by the said Act of Parliament ; nor without the consent of 
the members of the said corporation, in a general court qualified to vote 
as aforesaid. 

The governor or deputy-governor shall summon four general courts 
at least in every year. One in the month of September, one in Decem- 
ber, one in April, and another in July. 

The governor or deputy-governor shall also summon a general court, 
whenever requested to do so by nine members, each holding £ 500 stock. 

If governor and deputy-governor be absent one hour after the usual 
time of proceeding, at any general court or court of directors, a chairman 
shall be chosen for that time only, who shall have like privileges as the 
governor or deputy- governor. 

Governor, deputy-governor, or chairman, not to vote in general courts, 
or court of directors, save when there shall happen to be an equal number 
of votes on each side. 

The Bank of Ireland commenced business at St. Mary's Abbey, June 
25, 1783. After the Union, its office was removed to the Parliament 
House. 

In the year 1821, the capital of the Bank of Ireland was increased from 
£ 2,500,000 to £ 3,000,000 Irish currency. The additional £ 500,000 
was taken from the bank's surplus fund, and lent to the Government at 4 
per cent., to be repaid by the 1st of January, 1838. The increased capital 
was divided among the proprietors, at the rate of £ 20 for every £ 100 
thev possessed. In consideration of this' increase of capital, the bank 

356 



The Bank .of Ireland. 

ronsented to a clause in this Act, whereby persons in partnership, resid- 
ing fifty miles from Dublin, might carry on the business of banking, al- 
though such partnership might consist of more than six partners ; but that 
such partnership should possess no other privilege than being allowed to 
sue and be sued in the name of a public officer, should Parliament here- 
after think fit to grant such a power. This privilege was of little prac- 
tical use, for, according to the construction put upon the Act, it required 
that all the partners in these banks should reside in Ireland. 

In this year an Act was passed (5 Geo. IV. cap. 73) " to relieve bank- 
ers in Ireland from certain restraints imposed by the provisions of the 
29 Geo. II., and to render all and each of the members of certain co- 
partnerships of bankers, which may be established, liable to the engage- 
ments of such copartnerships, and to enable such copartnerships to sue 
and be sued in the name of their public officer." 

Those clauses in the former Act that required the names of all the 
partners to be subscribed to the notes, and which prohibited bankers being 
traders, are by this Act repealed. Banking partnerships exceeding six 
persons, and carrying on business at any place beyond fifty miles from 
Dublin, shall be registered at the Stamp-office, Dublin ; and also the 
names of the public officers, in whose name such partnerships sue and are 
sued. The names of those public officers were also required to be sub- 
scribed to all notes and receipts issued by the company. Judgments 
against the public officers to operate as judgment against the partnership, 
and execution upon judgment may be issued against any member of the 
society, and the public officer to be saved harmless. 

In the year 1825 was passed the " Act for the better regulation of co- 
partnerships of certain bankers in Ireland." It was obtained by the di- 
rectors of the Provincial Bank of Ireland, as the Acts previously granted 
did not furnish the facilities which the Provincial Bank required for the 
beneficial exercise of its operations. It confirmed the permission granted 
by former Acts to establish joint-stock banks at a greater distance than 
fifty miles from Dublin, and permitted persons resident in Great Britain 
to become shareholders in such banks. The banks were required to re- 
gister at the Stamp-office in Dublin an account of the names of the firms, 
the several partners therein, and the public officers thereof. The partner- 
ships shall sue and be sued in the name of their public officers. Parties 
obtaining judgments in Ireland may authorize the acknowledgment of like 
judgment in Great Britain ; and, in like manner, parties obtaining judg- 
ment in Great Britain may proceed thereon in Ireland. Judgments 
against public officers shall operate against the society, and execution upon 
judgment may be issued against any member of the co-partnership. All 
transfer of shares must be registered at the Stamp-office. 

In this year, too, an Act of Parliament was passed to assimilate the 
(.urrency of Ireland to that of England. It is entitled, " An Act to pro- 
vide for the assimilation of the currency and moneys of account through- 
out the United Kingdom of Great Britain and Ireland." (6 Geo. IV. 
cap. 79.) The Act recites, that the pound sterling in Great Britain and 
Ireland respectively is divided into twenty shillings, and the shilling into 
twelve pence ; but the silver coin which represents a shilling in Great 

357 



A Treatise, on Banking. 

Britain is paid and accepted in Ireland for thirteen pence, and the pound 
sterling of Great Britain is, at the par of exchange, paid and accepted 
for one pound one shilling and eight pence of the currency of Ireland ; 
and that great complexity of accounts, and other inconveniences, arise 
from the said difference of currencies. It then enacts, that the currency 
of Great Britain shall be the currency of the United Kingdom, and all re- 
ceipts, payments, contracts, and dealings, shall be made in such currency. 
And all contracts, debts, &c, made or contracted previous to the com- 
mencement of this Act shall be carried into effect, and satisfied by pay- 
ment in British currency of 12-13ths of the amount according to Irish 
currency. All duties and public revenues, and all funds and public debts, 
shall be estimated in British currency, and the accounts thereof kept ac- 
cordingly. After a day to be named by proclamation, British silver and 
gold coins shall be current in Ireland at the same rate of pence as in Great 
Britain. On the like proclamation, Irish copper coin shall be brought 
into the Bank of Ireland, and exchanged there for British copper coin, at 
the rate of twelve pence British for thirteen pence Irish, and the Irish 
copper coin shall cease to circulate. Bankers' notes shall be made pay- 
able in British currency. No notes payable in Irish currency shall be re- 
issued after the commencement of this Act, under a penalty of £ 50 for 
each offence. Bankers may deliver into the Stamp-office re-issuable 
notes, payable in Irish currency, and receive in lieu thereof new stamps 
to the whole amount of the stamps delivered up, if dated within one year 
previous, or three fourths if within two years, and one half if within three 
years. This Act came into operation on the 5th day of January, 1826. 

Very ample returns of the state of the Bank of Ireland are published 
in the Appendix attached to the Reports of the Parliamentary Commit- 
tees. The following is that of the latest date : — 

12th February, 1848. 
Circulation : — £ £ 

£5 and above, . 1,867,300 
Under, . . 1,232,900 

3,100,200 

Deposits : — 

Public, . . 1,336,600 

Private and Sun- 
dry Balances, . 2,1 60,500 

3,497,100 



Securities : — 


£ 


£ 


Public, m . 


. 


3,735,800 


Private, viz. 






Notes and Bills 






discounted, . 


2,605,400 




All other Private 




Securities, 


536,900 









3,142,300 


Specie, 


• 


808,500 



6,597,300 7,686,600 

This account includes the bank and the branches. The circulation of 
the branches was : — £ 5 and above, £ 769,800 ; under £ 5, £ 855,500 ; 
making a total of £ 1,625,300. The deposits at the branches amounted 
to £ 564,800, and the bills under discount to £ 1,852,000. 

The Bank of Ireland has branches at the following places : — 



Armagh, 


Drogheda, 


Longford, 


Tullamore, 


Ballinasloe, 


Dundalk, 


Maryborough, 


Waterford, 


Belfast, 


Galway, 


New Ross, 


Westport, 


Carlow, 


Kilkenny, 


Newry, 


"Wexford, 


Clonmel, 


Limerick, 


Sligo, 


Yon glial. 


Cork, 


Londonderry, 


Tralee, 





358 



The Provincial Bank. 

The Provincial Bank of Ireland. 

Public banks may be divided into three classes : first, Chartered Banks, 
those which have received a charter from the crown ; secondly, Joint- 
stock Banks, formed under the common law ; and, thirdly, Joint-stock 
Banks, formed under the statute law. 

The common law of England allowed any number of persons to form 
themselves into a partnership to carry on banking. At the same time, it 
presented this inconvenience in the formation of such partnerships, — in 
all actions at law, it was necessary to state the names of all the individ- 
uals who composed the company. Another inconvenience of partnerships 
formed under the common law was, that all the partners were answerable 
for the debts of the company, to the full extent of their property, not only 
while they were partners, but after they had ceased to be partners, as far 
as regards any transactions that took place during the continuance of their 
partnership. The banks avoided these inconveniences, in the first place, 
by conducting their business in the names of trustees, in the same way as 
some of the insurance companies ; and in the second place, by inserting 
a clause in the deed of settlement, that in case the bank should lose one 
third or one fourth the amount of its paid-up capital, it should immediate- 
ly be dissolved. 

The statutes 6 Geo. IV. c. 42, with reference to Ireland, and 7 Geo. 
IV. c. 46, with reference to England, not only repealed those Acts of 
Parliament which prohibited the formation of banking companies having 
more than six partners, but they also removed the inconveniences of the 
common law. It was enacted, that it should no longer be necessary, in 
legal actions, that the names of all the partners should be placed upon 
the record ; but that the company should register at the Stamp-office 
the name of some one person in whose name they wished to sue and be 
sued. Any party who had a disputed claim upon the company must sue 
this public officer, and when he had obtained a verdict in his favor, he 
might issue judgment against all the partners, in the same way as though 
he had obtained a verdict against them all. And, that he might have no 
difficulty in ascertaining who were or were not partners, it was required 
that the names of all the partners should be annually registered at the 
Stamp-office. The statute law also obviated the second inconvenience of 
the common law, by enacting that every partner, as soon as he had trans- 
ferred his share, should be released from all liability as to the subsequent 
act of the company, and at the end of three years he was no longer liable 
for any acts that took place even at the time he was a partner. 

The Provincial Bank of Ireland was formed under the statute of 6 Geo. 
IV. c. 42. Few banks have in so short a time advanced to so high a de- 
gree of prosperity. The circumstances of Ireland at that period were 
friendly to the growth of such an establishment. The recent abolition 
of the union duties, and the introduction of steamboats, had given a stim- 
ulus to the trade between the two countries, while nearly all the banks in 
the south of Ireland had been swept as by a whirlwind from the face of 
the land. The operations of the bank were also facilitated by the assimi- 
lation of the currency, and the measures taken by the Government and 
Y 359 



A Treatise on Banking. 

the Bank of Ireland to prevent these fluctuations in the exchanges which 
had previously existed. But the prosperity of this bank must be attribut- 
ed chiefly to the wisdom and prudence manifested in its constitution and 
in its subsequent government. The capital was raised chiefly in England, 
and London was, consequently, made the seat of government. The 
board of directors was composed of merchants and statesmen, and the 
latter were taken from the leading men of the two parties into which Ire- 
land was then divided. The local government of the respective branches 
in Ireland was composed of directors possessing local knowledge and in- 
fluence, and of managers selected for their experience in banking, and 
the manager had a veto upon the decision of the board. An inspector 
was appointed to visit the branches, and to report to the London office. 

At the same time, the bank had considerable difficulties to contend 
against. Property in Ireland was considered insecure ; political and re- 
ligious feelings often interfered with matters of business ; the habits of 
the people were not commercial ; and the country had suffered so severe- 
ly from private banking, that confidence was not easily acquired for a 
new company, the members and constitution of which were but imper- 
fectly known. Before these difficulties had been completely overcome, 
the bank became involved in a competition with branches of the Bank of 
Ireland, and exposed to sudden demands for gold arising out of political 
events. 

The object of the bank is thus stated in the original prospectus : — 

" The bank to have a capital of £ 2,000,000, if necessary, subscribed in shares of 
£ 100 each. To have a board of directors in London, and establishments for business 
in the principal towns of Ireland which are distant above fifty miles from Dublin. 
At each of these places, a part of its stock to be subscribed, and from the stockholders 
a local board of directors to be chosen. The establishments to be managed by steady, 
experienced persons sent from England, with the advice and under the inspection 
of the local directors, but subject to the entire control of the London board, to whom 
accounts shall be regularly transmitted." 

The first report, delivered by the directors to the shareholders in May, 
1826, stated that the bank had the following nine branches : — 





Opened. 


Cork, . 


. Sept. 1, 1825 


Limerick, . 


Nov. 1, 1825 


Clonmel, . 


. Nov. 15, 1825 


Londonderry, 


Dec. 12, 1825 


Sligo, . . . 


. Feb. 20, 1826 





Opened. 


Wexford, . 


. Feb. 27, 1826 


Belfast, 


Mar. 1, 1826 


Waterford, 


. May 1, 1826 


Galway, 


May 1, 1826 



The state of banking in Ireland at the time the Provincial Bank was 
formed is thus described in their Eleventh Annual Report, delivered in 
May, 1836: — 

" To show the progress of that competition, it may be sufficient to state, that prior 
to 1825, when the Act 6 Geo. IV. c. 42 was passed, under which the Provincial Bank 
was established, the Bank of Ireland had no establishment out of Dublin. 

" That in Dublin itself there were only four more, and these private banks ; and 
that in all Ireland besides there were no other than private banks, and these only in 
Belfast, Cork, Wexford, and Mallow. 

"From 1825 to 1834, banking offices in the chief cities ancl towns of Ireland had 

360 



The Provincial Bank. 

been gradually established by the Provincial Bank, the Bank of Ireland, the Northern 
and the Belfast Banks, to the number of about fifty ; while, within the short space of 
the last two years, the offices of joint-stock banks having resident managers or agents 
beyond fifty miles from Dublin, added to the branches of the Bank of Ireland, have 
increased to upwards of 120, and appear to be daily augmenting in number ; besides 
which, there are a great variety of stations attended on market-days by non-resident 
agents, on behalf of one or other of such banks ; and, in addition to all these, several 
establishments, on a large scale, have been lately announced in Dublin as in con- 
nection with some of the joint-stock banks most recently formed in the provinces. 

' ; The directors cannot, however, regard this unexampled rapidity of increase in the 
number of banks as a certain indication of prosperity. Amidst the excitement arising 
out of this state of things, they have considered it to be their duty to impress upon all 
their local directors and managers the necessity of increased caution and vigilance, and 
to warn them of the extreme danger of entering upon a race of competition, in which 
those who engage in it are too apt to overlook what is essential to their own safety." 

There is no joint-stock bank of whose rise and progress we have a 
more detailed account than the Provincial Bank of Ireland. This account 
is furnished to us in the evidence given to a Committee of the House of 
Commons, by the late secretary, Mr. James Marshall. We recommend 
the following quotations to the especial consideration of students in prac- 
tical banking, as showing most minutely the various steps by which pros- 
perity is obtained by banking institutions : — 

1. — The Constitution of the Provincial Bank of Ireland. 

" Can you explain to the committee the constitution of the Provincial Bank ? — I 
can. I may make reference to the annual reports of the institution, of which, I un- 
derstand, copies were furnished to this committee ; a report is made to the proprie- 
tors on the third Thursday of May in each year. 

" By whom is that report prepared ? — By a special committee. 

" A committee of the board of directors 1 — A committee of the board of directors, 
whom it is my duty to attend on such occasions, and to be their organ in acting as the 
clerk of that committee. 

" When that sub-committee has prepared the report, what further step is then taken ? 
It is submitted then to the general court of directors. 

" Is it examined by them % — By the general court ; it is laid before them, and every 
part of it is explained to them 5 and they have it in their power to examine any part, 
to refer instantly to the books, or the source from which it is drawn. The committee 
in making it up go very minutely to work, and examine very particularly. 

" Then are the committee to understand, that before the report is laid before the 
proprietors, that report is first submitted to a select committee, reported by them to 
the general court, and approved of by the general court ? — It is ; it is, in the first 
instance, signed by the chairman of the committee, when presented to the general 
court. 

" When laid before the proprietors, is it laid before the proprietors on the responsi- 
bility of the court of directors 1 — Completely so." 

" Just confine yourself at present to the constitution of the bank. ' It may be here 
proper to state, for the information of the proprietors, the regulations which have been 
adopted, in the first place, for conducting business in a proper manner at the branches : 
and, secondly, for the control and superintendence which are exercised over them by 
the directors in London. First, as to the branches ; for the due management of the 
business at each a suitable house has been obtained, and the following officers have 
been provided ; viz. manager, accountant, teller, clerk, porter ; all of whom find secu- 
rity for their fidelity. Where the scale of business requires it, the number of the in- 
ferior officers is increased, but there are only two principal officers at any branch, 
viz. manager and accountant ; and for securing more effectually the proper discharge 
of the duties of all, and assisting the manager with advice and information, there has 
been appointed at each station a board of local directors, consisting, according to cir- 
cumstances, of three, four, or five gentlemen of the first respectability in the place, 

361 



A Treatise on Banking. 

who, in order to be eligible, must themselves have an interest in the establishment, by 
holding ten shares each of its stock. The duty of these gentlemen is to meet daily at 
a given hour at the bank's office, and, along with the manager, to judge of bills pre 
sented for discount, and of all applications for credits. For every act of business of 
this nature it is necessary that two local directors and the manager be present ; and it 
is provided, that where applications for discounts or credits exceed, in individual cases, 
a certain fixed amount, or when the manager differs in opinion from the majority of 
the local board, the matter must be submitted to the decision of the court of directors 
in London. It is further the duty of the local directors to compare daily the vouchers 
with the entries in the cash-book, to count, at stated intervals, the cash in charge of 
the manager, and to certify the returns made periodically from the branch to London. 

" Are the committee then to understand distinctly that the local directors, in the 
case in which the manager, who is the head officer of the society, differs with them, 
although he may differ singly, are bound to refer those cases to the London board be- 
fore any decision is come to 1 — In every case. 

" In another contingency it would appear, that where the pecuniary transactions in 
question exceeded a given amount, that too, although the board might be unanimous, 
is brought under the consideration of the London board of directors ? — It is. 

" What does that sum generally amount to 1 Is it a fixed sum, or does it vary ac- 
cording to the circumstances of the different branches ? — It has varied according to 
circumstances ; but, generally speaking, from £ 300 to £ 500 is considered the extent 
to which any thing in the shape of a credit, other than the discount of a mercantile 
bill, would go." 

2. — The Selection of Officers. 

" Be so good as to explain to the committee what steps were taken by the Provincial 
Bank of Ireland in the selection of their various paid officers at the branches ? — I be- 
lieve that is detailed in this said report. l The selection of officers in particular was 
a matter of paramount importance, both on account of the great number required to 
fill the intended situations in Ireland, and the necessity there was to scrutinize their 
qualifications as to character and ability. Communications were made on this subject 
with various gentlemen in different parts of the country, from whom it was expected 
the best information could be obtained. The prospectus of the society having set out 
with the resolution that the business should be conducted on the principles which had 
been so long and so successfully acted upon in Scotland, it seemed desirable to obtain 
from that country persons trained up in banks there, provided their qualifications in 
other respects were such as to recommend them. With this view, the secretary ' (that 
was not myself at that time) ' was sent down to Edinburgh in February for the purpose 
of making inquiries ; and notice having been given in the public papers that persons 
were wanted to fill situations in the projected establishments in Ireland, a gentleman 
in the above city was employed to receive applications and to institute the most minute 
and scrupulous inquiries regarding the character and qualification of those who should 
apply. Another gentlemen from the same city was also engaged to proceed to Lon- 
don, to assist the directors in the formation and prosecution of a plan for conducting 
the business, when they should be ready to commence it in Ireland ' (that alludes to 
myself ). ' The extensive correspondence which the applications and inquiries, pro- 
duced by the measures above mentioned, necessarily occasioned, occupied the atten- 
tion of the directors very closely, and for a considerable length of time, and the result 
has been that the services of a number of most valuable officers have been secured to 
the society.' 

" But at that period was there a greater facility in procuring the services of gentle- 
men more particularly who had experience in the Scotch banking than there would 
be subsequently, when there was a more active competition in the establishment of 
banks ? — No doubt of it. 

" What description of security were these officerso-equired to give ? — Unexception- 
able personal security ; two persons, at least, generally were joined in a bond for the 
fidelity of the officer. 

" Was there any fixed proportion between the amount of the security required and 
of the salary paid, or the duties to be performed ? — The amount had respect to the 
duties to be performed rather than to the salary. 

362 



The Provincial Bank. 

" What was the general security that was taken by bond for the fidelity of these 
officers ? — The lowest clerk was £ 1,000 ; the highest £ 10,000 for a manager at the 
largest branch. 

" And that has been enforced by the Provincial Bank with respect to its officers ? 
The amount of £ 10,000 has not been required, as we have practically found £ 5,000 
to be a more commandable sum ; I would say, within the reach of the description of 
parties who are aspirants to these offices. 

" Now with respect to the local directors, how were they selected ? — It is mentioned 
here, that there should be selected three, four, or five gentleman of the first respecta- 
bility in the place, of commercial knowledge, whenever those could be obtained ; if 
having had that commercial knowledge, and being disengaged from business, they 
were considered as so much the more eligible. 

" But in the selection of local directors, so far from excluding persons by reason of 
their having commercial or banking knowledge, are the committee to understand that 
such parties were preferred ? — Where they had it, and were not understood to be in 
a situation to require banking accommodation for themselves. 

" You have stated that the local directors were required to take ten shares each, at 
the least % — Yes. 

" Will you have the goodness to state what the reason was that they were required 
to take those shares ? — In order that they might have a greater interest in the estab- 
lishment ; feel a personal interest. I must say we have not, in every instance, been 
able to get gentlemen of that description. We have, in some instances, appointed 
gentlemen who, from various causes, declined to become shareholders ; at least, we 
have elected gentlemen to be local directors without requiring the fulfilment of that 
condition : there are some instances at present of gentlemen who are so 5 but no doubts 
regarding the solvency of the bank ever deterred any of them." 

3. — The Choice of Directors. 

" Now tell us how they are appointed ? — The directors in London were, of course* 
originally appointed by the gentlemen who associated together for the purpose of 
forming this establishment ; and they continued, with the approbation of the meeting, 
until a certain time, when by the deed of settlement, which was afterwards prepared, 
four were to go out every year. 

" In the vacancy of the four, who appoints their successors ? — The proprietors gen- 
erally ; the general meeting of proprietors. 

" Are they reeligible ? — They are declared by the deed of settlement to be re- 
eligible. 

" Are they recommended to the court of proprietors by the court of directors ? 
They are ; they have been virtually so : and I beg to refer to one of the annual re- 
ports, which gives an explanation upon that point. It is in the report made the 17th 
of May, 1827, in which it is stated : — The directors have now to advert to a cir- 
cumstunce of some importance as connected with the constitution of the society. 
By the deed of settlement, the number of directors was limited to twenty. Since 
the completion of the deed, that number has been reduced by death or resignations 
to sixteen ; and the directors having found by experience that the latter number is 
quite sufficient to insure a due attendance for the efficient management of the busi- 
ness of the establishment, have not thought it necessary to enforce the terms of the 
deed by proposing the election of new members ; and they think themselves now justi- 
fied, by past experience, in unanimously recommending to the court of proprietors to 
limit the number of directors for the ensuing year to sixteen. The directors may add, 
that this arrangement will be attended with a considerable saving of expense ; and in 
conclusion, they beg to state to the proprietors an opinion in which they also unani- 
mously concur; viz. that in future elections, it will greatly conduce to the harmony 
and cordiality which it is so desirable should prevail amongst the directors themselves, 
as well as to the good management of the bank's affairs, if a recommendation shall be 
made by them to the proprietors in favor of those candidates whom, after due inquiry, 
they shall find to be the best qualified to fill the situation.' 

" Have those recommendations been generally complied with by the proprietors ? 
— Always. 

" Uniformly, without exception ? — Uniformly ; it has uniformly been acquiesced in. 
Two or three candidates had upon more than one occasion started, but when the mat- 

363 



A Treatise on Banking. 

ter was explained to them, they have uniformly acquiesced in it. It is necessary to 
state, to complete this, that the recommendation to limit the number of directors to 
sixteen was afterwards the subject of a special provision by an additional deed of the 
proprietors, therefore the number cannot be extended beyond sixteen without altering 
the deed. 

'* Are the directors paid for their attendance 1 — They are. 

• What is the amount of payment which they receive ? — It is so regulated that no 
director can receive above £ 250 a year, the director in London I mean, were he at- 
tending at every possible meeting that he could. 

" Is the payment an annual payment, or proportionate to the attendances ? — Pro- 
portionate to the attendances, ascertained every quarter. 

" According to the number of attendances so the parties are paid ? — Yes, accord- 
ing to the attendances. 

" Was that sanctioned by the proprietors and by the society ? — The deed of settle- 
ment contains a provision allowing the directors to take the sum of £ 5,000 as re- 
muneration ; they have never taken more than £ 3,000 ; the proportion is reduced ; 
that was when the number of directors was twenty. 

" Sir Thomas Fremantle. — What do they take now, the sixteen 1 — They cannot 
exceed £3,000." (At a recent meeting of the shareholders of the bank, the chairman 
stated the amount to be £4,000.) 

4. — The Daily Committee. 

" Will you state how they transact their business ? — By meeting daily in committee, 
(a general committee,) which is open to all to attend ; but in order to be a quorum, 
there must be three present ; and by a weekly court, held each Friday, at which all 
ought to be present. 

" Is there a record in writing of all the directions and the acts of that special com- 
mittee'? — There is. 

" Are each of those acts brought under the examination and review of the general 
court on Friday 1 — At the weekly court they are, the minutes are read over. 

" Is the question put upon the confirmation of those minutes, or is it open to the 
general court to vary or alter them 1 — The question is specially put by the chairman 
of the weekly court, whether it is the pleasure of that court to confirm the minutes of 
the past week which have been read. 

" Have you known instances in the management of the bank in which there have 
been any variations upon the proceedings of the committee proposed by the general 
court, so as to show that it is an active as well as a theoretical superintendence ? — I 
have seen instances where the subject has been brought under revision, and which has 
produced an alteration of the resolution of the committee. 

" Having now explained to the committee the formation of your local administra- 
tion at the branches, and your general administration in London, will you state what 
the course of proceeding is, to insure to the court in London a knowledge of that 
which takes place at the different branches ? — I read from the report already referred 
to : ' Regular advices of the proceedings at the branches are transmitted by the mana- 
gers to London by post every second or third day, according to circumstances ; and at 
the end of each week a complete statement of the whole transactions is made up, and 
forwarded by the mail-coach. These returns are first examined by the officers of the 
London establishment, and then submitted to the directors. For giving the necessary 
orders arising out of these communications, for judging of all matters referred to 
them from the branches, for disposing of the bank's funds in London and Dublin, and 
for the discharge of all other duties implied in the exercise of a superintendence over 
the whole establishment, whether in Ireland or in London, the directors hold regular 
and daily meetings. 

" Are the accounts which are sent from the branches accounts in detail of the whole 
of the operations of the bank ? — They are. 

" Are they, in fact, transcripts of the accounts of the bank from period to period 1 — 
They are so ; with this explanation regarding the current accounts of parties holding 
accounts with the bank, every particular draft or receipt is not sent to London, or 
rather the entries of these, I mean, are not copied or sent to London ; but there is this 
check on the operations at the branches, the exact balance of every man's account at 
the end of each week is given, and forms part of an abstract of the balance-sheet 

364 



The Provincial Bank. 

which is set forward, and which must agree ; therefore if it were wrong it would at 
once detect itself. 

' ; Then no variation can take place in the actual balance without the attention of the 
court being at once called to it 1 — None can. 

" And is the name of each individual to whom these advances are made from time 
to time brought under the special notice of the court of directors in London ? — Yes ; 
by the following process. The branches are divided amongst the directors, so many 
allotted to such a sub-committee, who take up the affairs of these branches each week 
in succession, and examine all the bills that have been discounted, the advances that 
have been made of any description, and the balance of each man's account, whether in 
his favor or against him." 

5. — The Inspection of Branches. 

" Have you any system of inspection by which you are enabled from time to time to 
. verify the correctness of the proceedings of the branches 1 — We have ; besides having 
a half-yearly balance-sheet made out with all the details of the affairs of each branch 
at the time, and which is scrupulously examined at London, there is an inspector (two 
at present) whose duty it is to go through the branches and to examine personally and 
verify every voucher and every particular, and to remain at the branch until they are 
fully satisfied that all is right. 

" Who are these officers 1 — Mr. Murray, the first manager employed at Cork, was, 
from a conviction of his very eminent qualifications for that office, elected inspector ; 
he is now our agent in Dublin, and chief inspector of the branches. There has been 
united with him in duty, first, Mr. Paton, who was manager at Armagh, and then 
manager at Cork, but who has now left our service, except that he has been elected a 
local director of the Armagh branch, where he now resides. Mr. Paton has been suc- 
ceeded in the inspectorship by Mr. Hewat, who is at present acting as interim manager 
at Cork branch. 

" Are the visits of your inspectors at stated and known intervals, or is any branch at 
any one moment liable to the visit of an inspector, and to an immediate examination 
and verification of their accounts and bills and balances ? — Every branch is so liable 
to be visited ; there is no previous intimation given, except the visit be for some par- 
ticular purpose which, by a representation from the branch, calls on the inspector 
to go. 

" As an additional security, have you yourself, or any of the directors, been accus- 
tomed to visit the branches, and to report thereon ? — I have myself every year, and 
sometimes oftener than once a year, even twice or three times in a year, gone to Ire- 
land, and have gone through the whole branches, in fact, more than once, at different 
times ; and on all occasions have made examinations which appeared to me to be 
necessary ; * and besides that, the directors have in person repeatedly visited the 
branches ; deputations of the London directors, I mean, have so done." 

6. — The Declaration of a Dividend. 

" Will you explain to the committee what steps you take before you declare a divi- 
dend ? — We have regularly a balance every half year ; the dividend has only been 
declared once a year, at the termination of the year, which is in March ; our year ends 
in March. Prior to that period, each manager is directed to send up a special report 
of every obligation which is outstanding, or of any which is doubtful, describing par- 
ticularly in the report every party to such obligation ; that is preparatory to going fur- 
ther into the matter ; then when the balance at the end of March is completed, a com- 
plete balance sheet of every branch is made up and sent to the bank, with a more de- 
tailed report. A special committee of the directors is appointed to examine those, and 
they go minutely through them, and weigh every outstanding debt, and strike off 
every thing that is considered to be irrecoverable ; they then consider in what degree 
the reports of the managers represent every other outstanding debt to be recoverable, 
either in full or in part ; and when all that has been done, they add generally a sum 
to cover still any possible omission, and it is only then that the fair profits of the year 
are considered to be ascertained. 

" Can you inform the committee how far your calculations, your annual calculations 
of bad and doubtful debts, have or have not been below or above the mark ? — In 
many instances, our allowances have exceeded what has turned out to be the real loss ; 

365 



A Treatise on Banking. 



for, as I mentioned before, the directors, in order to be more secure, have been in the 
practice of making an additional deduction over all the deductions made by the officers 
at the branches. 

" Have the proprietors any power under your deed of settlement of naming any au- 
ditors, or having any examination of those accounts, so as to verify their fidelity 1 — 
We have no auditors, but there is a provision in the deed of settlement by which a 
certain number of proprietors may call for a further investigation of the accounts, if 
they are dissatisfied." 

7. — The Causes of its Prosperity. 
" Do you think there is any thing peculiar in the construction of this bank which has 
insured its being correctly and well managed up to the present time, or that it has 
rather arisen from the 4 happy accident ' of the directors who were selected having been 
honorable and correct men of business 1 — I conceive the very first and indispensable 
thing was an exceedingly respectable board of directors formed in the first instance, 
and which has always been maintained. In the next place, that the system of account- 
ing that was adopted, and the check on the operations of the different branches, which 
has not been departed from, has most materially contributed to that good result. In 
the next place, there was an exceedingly good field for banking when we commenced, 
for Ireland was very destitute of good banks at the time, the Bank of Ireland opera- 
tions having been confined only to Dublin. Therefore, from all those concurring cir- 
cumstances, I conceive the prosperity of the bank has resulted." 

To these causes we may add one more, stated in the Report delivered 
by the Directors to the Proprietors in the year 1836, — the non-interfer- 
ence of the shareholders in the distribution of the profits : — 

" To this desirable position the affairs of the bank have been conducted, as the di- 
rectors have great pleasure in acknowledging, by the uniform support and continued 
approbation of the proprietors, who, far from manifesting any impatient desire to par- 
ticipate in the reserved profits, have always relied with confidence on the opinion of 
those by whom the working of the establishment was superintended, feeling assured 
that whenever such participation was clearly expedient, it would not be withheld." 

The following is a copy of the Balance-sheet attached to the last Re- 
port, delivered May 17th, 1849 : — 

Provincial Bank op Ireland. 



The amount of rest or undivided profits at 25th March, 1848, was . 
Out of which there have been paid two half-yearly dividends, at the 
rate of 8 per cent, per annum, amounting to ... 

Leaving a balance, or rest, of . . . 

To which there has since been added the amount of net profits for 

the year ending the 31st March last, after deducting the Property 

Tax and all expenses, and providing for all bad and doubtful 

debts, 

Making the amount of rest at 31st March, 1849, 



£ s. d. 

107,505 10 11 

43,200 

64,305 10 11 

45,733 5 6 

£110,038 16 5 



The Provincial Bank of Ireland has branches at the following places 



Armagh. 

Athlone. 

Ballina. 

Ballymena. 

Ballyshannon. 

Banoridge. 

Bandon. 

Belfast. 

Cavan. 

Clonmel. 



Coleraine. 

Cootehill. 

Cork. 

Drogheda. 

Dundalk. 

Dungannon. 

Dungarvon. 

Ennis. 

Enniscorthy. 

Enniskillen. 



Fermoy. 

Galway. 

Kilkenny. 

Kilrush." 

Limerick. 

Londonderry. 

Mallow. 

Monaghan. 

Newry. 



Omagh. 

Parsonstown. 

Skibbereen. 

Sligo. 

Strabane. 

Tralee. 

Waterford. 

Wexford. 

Youghal. 



366 



The National Bank. 

The National Bank of Ireland. 

The Prospectus of this bank, issued in 1834, announced that it would 
be conducted on the " local shareholder principle." 

" It is proposed that each branch shall have a separate capital proportioned to the 
extent of its business, one half to be subscribed by resident shareholders, so as to iden- 
tify their interest with their own establishment, and the -other half to be subscribed by 
the National Bank of Ireland, whose connection with each branch, whether, its separate 
capital consists of £ 5,000 or £ 50,000, will afford it the credit of whatever capital 
(however large) the National Bank of Ireland may have actually paid up at the 
time." 

" The following are the terms and conditions of subscribing : — 

" 1 . That a company shall be formed in London, to extend to Ireland the benefit of 
a sound banking system. 

"2. That a bank be formed in each town in Ireland, where practicable by law, and 
which offers a prospect of success to the operations of the company. 

" 3. That the object of the London company shall be to connect itself with share- 
holders exclusively interested in the success of each local establishment. 

" 4. That the principle of the bank shall be the division of profits of each bank with 
such local shareholders in Ireland. The capital of each branch to be subscribed 
equally by shareholders on the spot and the company in London. 

" 5. That the capital of the London company shall be £ 1,000,000, in shares of £ 50 
each, to be called the original capital, which may be increased as the business of the 
company extends ; but the premium, on any addition, to go to the first subscribers. 

" 6. That the bank shall be formed as soon as half the capital is subscribed. 

" 7. That the bank shall be managed by a board in London, consisting of twenty- 
four directors, in whom will be vested the supreme control. 

" 8. That each local bank shall be managed by a board of local directors, elected by 
the shareholders, subject to the approbation of the directors in London." 

This principle was first announced to the public by the late Mr. 
Thomas Joplin. He attempted to introduce it into the National Provin- 
cial Bank of England, of which he was the managing director, and to the 
formation of which he had materially contributed. But the practical dif- 
ficulties were found to be great. It was almost impossible to arrange the 
preliminaries to the satisfaction of all parties, and the principle was never 
brought into operation. Mr. Lamie Murray, who projected the National 
Bank of Ireland, was the secretary of the National Provincial Bank of 
England, and had adopted Mr. Joplin's views on the subject. When first 
established, therefore, the National Bank of Ireland acted on this princi- 
ple ; but after a few years the independent banks in Ireland consented to 
become branches of the head establishment. Those at Clonmel and 
Carrick-on-Suir, however, declined this arrangement, and they still regis- 
ter as independent banks, though they are regarded by the public as 
branches of the National Bank of Ireland. 

Another peculiarity attended the formation of this bank. Its chief con- 
nections lay among that political party in Ireland who advocated a Repeal 
of the Union, and who had been accused of causing all the runs for gold 
that had taken place on the existing banks. In the provisional committee 
we find the names of the late Daniel O'Connell, Esq., M. P., Maurice 
O'Connell, Esq.,M. P., Fitz-Stephen French, Esq., M. P., James Grattan, 
Esq., M. P., and others of the same political views. The seat of govern- 
ment, however, like that of the Provincial Bank of Ireland, was fixed in 
London One advantage resulted from connecting the heads of this party 

367 



A Treatise on Banking. 

with an Irish joint-stock bank. There was an end to all political runs for 
gold. When a run afterwards took place, in consequence of the failure 
of the Agricultural Bank, Mr. O'Connell used all his influence to allay the 
excitement then occasioned. The branches of the National Bank are 
opened almost entirely in the south and west of Ireland. The bank has 
also an office in Dublin, where, since the Act of 1845, it has issued its 
own notes. 

The report of 1848 states that the National Bank of Ireland had taken 
the business of the London and Dublin Bank : — 

" During the latter part of the year, it having been intimated to the directors that 
the London and Dublin Bank were desirous of dissolving that company, negotiations 
were entered into with the directors, which terminated in this establishment succeeding 
to its connections in the towns of Dundalk, Carrickmacross, Wicklow, Kells, Athy, 
Mullingar, and Parsonstown, with every prospect of advantage to the bank. The 
whole of these localities are, with the exception of Parsonstown, within the circle from 
which all banks of issue, except the Bank of Ireland, had been excluded, until the ex- 
tinction of the monopoly by the Banking Act of 1845." 

Several of the savings' banks in Ireland having failed, and occasioned 
losses to the depositors, through the dishonesty of the officers, and the in- 
ability of the trustees to make good the losses, the National Bank of Ire- 
land have recently determined to discharge some of the functions of a 
savings' bank. They receive deposits for 10s., <£ 1, £1 10s., <£2, £2 
10s., or for any multiple of 10s., but not for any fractional part of 10s. 
When the sums thus received amount to £ 5, the party gets a regular de- 
posit receipt for the amount. In the mean time he receives interest at the 
same rate which is allowed on other deposit receipts (at present 2 per 
cent.) and can withdraw it at a short notice. The following is the form 
of receipt given to the savings' bank depositor : — 

National Bank of Ireland. 

No. 

Received from 

of 

Ten Shillings. 

day of 18 



Manager. 



The following is a copy of the Balance-sheet attached to the last An- 
nual Report, delivered May 23d, 1849 : — 

£ s. d. 
The undivided profits at December, 1847, were . . . 61,105 4 4 

Net profits for the year ending December, 1848 . . . 26,490 12 10 

Deduct half year's dividend to Midsummer, 1848 

at 5 per cent £11,250 

Ditto, to Christmas, 1848 .... 

Bonus of 10s. per share on 20,000 shares 
Amount paid T. Lamie Murray, Esq., according 

to the provisions of the Deed of Settlement 
Balance of profit and loss carried to that account 

forl849, 

Leaving amount of undivided profits to the credit of reserve fund, 

at December, 1848 £50,105 4 

368 







£87,595 17 


2 


11,250 
11,250 
10,000 














1,000 










3,990 12 


10 

— 37,490 12 10 



The Hibernian Bank. 



The National Bank 

Athlone 

Athy. 

Ballina. 

Ballinasloe. 

Boyle. 

Carrickm across. 

Carrick-on-Suir. 

Cashel. 

Castlerea. 

Charleville. 

Clonakilty. 

Clonmel. 



of Ireland has branches at the 


following places 


Cork. 


Limerick. 


Roscommon. 


Dundalk. 


Longford. 


Roscrea. 


Dungarvan. 


Loughrea. 


Skibbereen. 


Ennis. 


Mallow. 


Tallow. 


Enniscorthy. 


Midleton. 


Thurles. 


Fermoy. 


Mitchelstown. 


Tipperary. 


Galway. 


Moate. 


Tralee. 


Kanrurk. 


Mullingar. 


Tuam. 


Kells. 


Nenagh. 


Waterford. 


Kilkenny. 


New Ross. 


Westport. 


Killarney. 


Parsonstown. 


Wexford. 


Kilrush. 


Rathkeale. 


Wicklow. 



The Hibernian Bank. 



The Hibernian Joint-stock Bank was formed in the year 1824. The 
following account of the origin of this bank is given by John Robinson 
Pirn, Esq., of Dublin : — 

" A nnmber of Roman Catholic gentlemen, finding they were continued to be ex- 
cluded from the direction of the Bank of Ireland, met together, and obtained the sig- 
natures, not only of Roman Catholics, but of a number of others, amongst the rest 
myself, to the establishment of this bank ; many merchants signed it, as considering 
that by having an opposition bank in such a city as Dublin, advantages would fre- 
quently be derived from it, and not altogether looking to the emolument which they 
should receive as subscribers to the bank, but looking at it as citizens generally ; I 
myself never calculated on a very great deal of profit from it, except at a very remote 
period. Some of the individuals who undertook it came over to London, and they 
had expected to obtain the power of issuing notes, but they met with so much opposi- 
tion from the Bank of Ireland, —there were some of the directors of the Bank of Ire- 
land came over here in order to oppose it, — and the clauses which they intended to 
enable them to issue notes were expunged in the committee ; but I state this only from 



Its nominal capital is £ 1,000,000, divided into 10,000 shares of £ 100 
each. £ 25 per cent, has been paid upon each share, so that the money 
actually advanced amounts to £ 250,000. 

In the same year this company obtained an Act, entitled " An Act to 
enable the Hibernian Joint-stock Company, for the purpose of purchas- 
ing and selling annuities, and all public and other securities, real and per- 
sonal, in Ireland, and to advance money and make loans thereof, on the 
oecurity of such real and personal security, at legal interest, and on the 
security of merchandise and manufactured goods, to sue and be sued in 
the name of the governor or secretary for the time being." * 

The preamble states, that, — 

" Whereas the commerce, and manufactures, and agriculture of Ireland has long la- 
bored under great disadvantage, arising from the want of due command of capital ; 
and that merchants and manufacturers have no means of procuring temporary advan- 
ces of money on a deposit of their goods, when a slackness of demand arises ; and 
whereas several persons have agreed to form themselves into a company, or partner- 
ship, under the name of the ' Hibernian Joint- Stock Company,' and have subscribed 
or raised considerable sums of money in order to purchase and sell annuities and all 
public and other securities, real and personal, in Ireland ; or to make loans and ad- 
vances of money on the security thereof, and on the security of merchandise and 

* Anno quinto Georgii IV. Regis, cap. 159 
369 



A Treatise on Banking. 

manufactured goods, at legal interest, and to receive lodgments of money or deposit 
thereof; and great public benefit is expected to be derived to the trade, manufactures, 
and agriculture of Ireland from the formation of such a company or partnership ; and 
whereas difficulties may arise from time to time," &c. 

It is enacted, that this company may sue and be sued in the name of their 
governor or secretary. A memorial of the names of the governor, secretary, 
and members, and of the transfer of shares, to be enrolled in Chancery ; 
and no actions to be brought by the company, under the authority of this 
Act, until such memorial shall have been enrolled. Execution upon any 
judgment against the governor or secretary may be issued against any of 
the members, who are to be reimbursed their expenses by the company. 

At the last half-yearly meeting of the shareholders, held on the 4th 
of December, 1848, the following statement was exhibited, and a dividend 
declared at the rate of 5 per cent. : — 

Abstract of the Affairs of the Company to 1st of November, 1848, pursuant to the Deed of 

Settlement. 

£ s. d. 

Assets of the company 550,575 1 6 

Due to the public 218,623 7 8 

331,951 13 10 
Capital of the company, £1,000,000, 25 percent, paid . . . 250,000 

Balance to credit of profit and loss in favor of the company . . 81,951 13 10 

Net profits of the company for the year ending the 1st of November 
last, after deducting all charges for management .... £16,05515 7 

The Royal Bank of Ireland. 

The Royal Bank of Ireland was formed in the year 1836, and before 
opening made arrangements for taking the business of the private bank of 
Sir James Shaw & Co. At that time the law did not permit joint-stock 
banks, in Dublin, to accept bills drawn at less than six months after 
date, or to sue and be sued in the name of their public officers. These 
restrictions were removed by the Act of 1845. The Royal Bank attempt- 
ed also at that time to obtain the power of issuing notes, but were not 
successful. The manager of the bank from its commencement has been 
Mr. Charles Copland, who had previously been a manager in the Provin- 
cial Bank of Ireland. 

At the last annual meeting, held on the 7th November, 1848, the 
following statement was laid before the shareholders : — 

£. s. d. 

The paid-up capital of the bank is 209,175 

The amount of reserve fund 45,475 8 

The net profits of the year, which terminated on the 31st of August last, • 

after deducting all expenses of management, amount to . . 19,877164 

Out of which have been paid to the proprietors two. half-yearly divi- 
dends, at the rate of 5 per cent, per annum, amounting to . 10,458 15 

Leaving a surplus on the year of . . . . . . . £9,419 1 4 

Which has been added to the bad and doubtful debt fund. 

370 



The Banks of Belfast. 



The Banks of Belfast. , 

There are three joint-stock banks at Belfast. The Northern Banking 
Company was formed in 1825, on a private bank which was called the 
Northern Bank. This was the first joint-stock bank in actual operation in 
Ireland. The Belfast Banking Company was formed on a private bank, 
which was called the Belfast Bank. The senior partner in this bank, 
John Holmes Houston, Esq., was examined as a witness before the Par- 
liamentary Committee of 1826, on the abolition of small notes in Ireland. 
His evidence contains some interesting particulars respecting the state of 
banking in Belfast during the time he had been a partner in that bank.* 
The Ulster Banking Company is a new bank, formed in 1837. All these 
banks have branches extending throughout the north of Ireland. The 
prudence with which banking institutions have at all times been managed 
at Belfast, has no doubt greatly contributed, with other causes, to the 
prosperity of the north of Ireland. The following is the condition of the 
three banks at Belfast : — 









°§ 


o . 






4) ti 

S a 






Belfast 


Date of 


Number 


o 


, "3 

— 9> 


Paid up on 


Paid-up 


.— u 


l_ to 


Fixed Circu- 


Banks. 


Bank. 


of Shares. 




c •_ 

3 CS 
OJ3 

Etc 
< 

£ 


Share. 

£ s. 
' First 25 ' 


Capital. 
£ 


2 




lation. 
£ 


Northern 


1825 


5,000 


193 


100 


Bonus 5 
30 0. 


• 150,000 


10 


11 


243,440 


Belfast 


1827 


5,000 


656 


100 


25 


125,000 


8 


18 


281,611 


Ulster 


1837 


75,000 


440 


10 


2 10 


187,500 


5 


15 


311,079 



The Northern Banking Company has branches in the following 
places : — 



Armagh. 
Ballymena. 
Carrickfergus. 
Clones. 



Coleraine. 
Downpatrick. 
Lisburn. 
Londonderry. 



Lnrgan. 
Magherafelt. 
Newtown limavady. 



The Belfast Banking Company has branches at the following pla 
ces: — 



Armagh. 

Ballymena. 

Ballymoney. 

Castleblayney 

Coleraine. 

Cookstown. 



Dungannon. 

Larne. 

Letterkenny. 

Londonderry. 

Magherafelt. 

Monaghan. 



Newry. 

Newtownards. 

Newtownlimavady. 

Portadown. 

Strabane. 

Tenderagee. 



* See the History of Banking in Ireland, by J. W. Gilbart 
371 



A Treatise on Banking. 

The Ulster Banking Company has branches at the following places : - 

Antrim. Cookstown. Lurgan. 

Armagh. Cootehill. Monaghan. 

Ballymena. Downpatrick. Omagh. 

Ballymoney. Enniskillen. Portadown. 

Banbridge. Londonderry. 

The Tipperary Joint-stock Bank. 

In the Act of 1845 there is an express provision with reference > tho 
Tipperary Bank. 

Provision in case of Determination of existing Agreement between the Bank of IrJondtand 
Tipperary Joint-stock Bank. 
" XXXI. And whereas a certain joint-stock banking Company, called an£ known as 
' The Tipperary Joint-stock Bank,' refrained from issuing its own bank uotes, under 
a certain agreement with the Governor and Company of the Bank of Ireland for the 
issue of the bank notes of the said governor and company, which agreement is deter- 
minable by either party upon certain notice to the other party, and it is just that in case 
such agreement should at any time hereafter during the continuance of this Act be 
determined and put an end to by the Governor and Company of the Bank of Ireland, 
that the said Tipperary Joint-stock Bank should receive by way of compensation 
such composition as hereafter mentioned ; be it therefore enacted, That if the said 
agreement shall be at any time hereafter during the continuance of this Act determined 
or put an end to by the Governor and Company of the Bank of Ireland, then and in 
such case the said governor and company shall, from the termination of the said 
agreement, pay and allow to the said Tipperary Joint-stock Bank, so long as the lat- 
ter shall continue to carry on the business of a bank and to issue exclusively the 
notes of the Governor and Company of the Bank of Ireland, a composition at and 
after the rate of one per centum per annum on the average annual amount of the Bank 
of Ireland notes issued by the said Tipperary Joint-stock Bank, and kept in circula- 
tion, such average annual amount to be ascertained by the Bank of Ireland in the 
manner provided for regulating the compensation to be made to certain bankers by 
the Bank of England in and by the Act passed in the seventh and eighth years of 
the reign of her present Majesty, entitled ' An Act to regulate the Issue of Bank 
Notes, and for giving to the Governor and Company of the Bank of England certain 
Privileges for a limited Period : ' Provided always, that the total sum payable to the 
Tipperary Joint-stock Bank by way of composition as aforesaid in any one year shall 
not exceed 1 per cent, on an amount that hath been agreed on by and between the 
Bank of Ireland and the Tipperary Joint-stock Bank, and certified by both banks to 
the Commissioners of Stamps and Taxes ; and such composition shall cease to be 
payable from and after the 1st day of January, one thousand eight hundred and fifty- 
6ix." 

The Tipperary Bank has branches at the following places : — 

Athy. Nenagh. Thurles. 

Carlow. Roscrea. Tipperary. 

Carrick-on-Suir. Thomastown. , 

At the last general meeting the directors declared a dividend at the rate 
of 6 per cent., and added .£2,513 8s. bd. to the " doubtful debt fund," 
which then amounted to £ 5,013 8s. hd. The amount of the capital was 
not stated. 

The following joint-stock banks have ceased to exist in Ireland : — 

1. The Agricultural and Commercial Bank of Ireland, formed in the 
year 1834, stopped payment in the latter end of the year 1836. It was 
afterwards resumed for a short time, and then finally closed. A full ac- 
count of the reckless proceedings of this bank is given in the third volume 
of the Bankers'' Magazine. 

372 



Currency in Ireland. 

2. The London and Dublin Bank was formed in 1844, and merged in 
the National Bank of Ireland in the year 1848. This was not a bank 
of issue. 

3. The Southern Bank of Ireland was formed at Cork after the failure 
of the Agricultural Bank of Ireland. It was registered the 25th of 
March, 1837, opened in Cork in the month of July, and stopped payment 
in the following September. 

The Laws of the Currency in Ireland. 

From what we have already said of the laws of the currency,* those of 
our readers who are acquainted with Ireland will be able to judge before- 
hand of the revolutions of her circulation. Being purely an agricultural 
country, the lowest points will of course be in August or September, 
immediately before the harvest, and the commencement of the cattle and 
bacon trade. Then it rises rapidly, till it reaches its highest point in Jan- 
uary, and then gradually declines. As an agricultural country, we 
should naturally expect that during the season of increase the circulation 
would expand most in the rural districts ; and so we find that the circu- 
lation of the Bank of Ireland, in Dublin, expands very moderately, — that 
of her branches, which are located chiefly in large towns, expands more, 
— while the circulation of the joint-stock banks, which are located in 
the agricultural districts, receives the largest increase. Again, the pur- 
chases and sales of agricultural produce are known to be in small 
amounts ; and hence the notes of the smallest denomination receive the 
largest relative increase. The annual changes of the Irish circulation are 
governed chiefly by the produce of the harvest and the prices of agricul- 
tural products. These are the laws of the circulation of Ireland. 

On this subject I may quote my own evidence before the Committee on 
Banks of Issue : — 

" I have told the committee that I was formerly manager of a joint- 
stock bank of issue in Ireland, and I have attempted to discover the laws 
which regulate the circulation of that country, by ascertaining the high- 
est and lowest amount of the circulation in each year. This which I 
have in my hand is a table showing the circulation of the Bank of Ire- 
land (including branches), the separate circulation of the branches alone, 
and the circulation of the Irish joint-stock and private banks, on the last 
Saturday of April, August, and December of the years 1834 to 1839. 
It will be observed that those periods are the same as those which I have 
referred to in the circulation of the English country banks. The law of 
circulation appears to be different, but they agree pretty nearly in this, 
that the lowest point is the latter end of August ; but the highest point in 
Ireland is generally the end of December or the beginning of January, 
and from December, or the beginning of January, it declines ; so that the 
country circulation of England is advancing eight months and declining 
four ; but the circulation of Ireland is advancing four months and declining 
eight. 

" Whence is this table compiled ? — From Appendix Nos. 32 and 33. 
* See pages 240, 292, 327. 
373 



A Treatise on Banking. 

This table shows that the circulation of Dublin does not vary much 
it shows that the circulation of the branches of the Bank of Ireland varies 
more ; and that the circulation of the joint-stock and private banks in Ire- 
land varies considerably more. 

A Table showing the Circulation of the Bank of Ireland (including Branches) ; 
the Circulation of the Branches alone; and the Circulation of the Irish Joint- Stock and 
Private Banks; on the last Saturday of April, August, and December, of the years 1834 
to 1839. 

I. — Bank of Ireland and Branches. 

1834. 1835. 1836. 1837. 1838. 1839. 

£ £ £ £ £ £ 

April, . . . 3,922,300 3,798,500 3,614,100 3,332,300 3,398,400 3,536,400 

August, . 3,452,800 3,198,700 3,133,500 2,921,600 3,055,800 2,981,800 

December, . 3,926,800 3,574,200 3,481,100 3,265,700 3,474,500 3,192,200 

II. — Branches of the Bank of Ireland. 

April,. . j C — 1,357,600 1,572,000 

August, > No separate account kept at this time. < 1,056,200 1,257,600 1,211,900 
December, ) ( 1,342,300 1,695,600 1,464,000 

III. — Joint-Stock and Private Banks. 

April, . . . 1,386,165 1,517,648 2,083,431 1,798,724 2,366,774 2,588,377 
August, . 1,140,654 1,264,572 1,928,900 1,480,240 1,881,906 1,982,122 
December, . 1,666,269 1,959,542 1,787,586 2,204,286 2,972,034 2,629,205 

" It will be observed, that in the year 1836, with regard to the joint- 
stock banks, there was a departure from the law, which usually increases 
the Irish circulation very rapidly between the months of August and De- 
cember ; for in 1836 the Agricultural and Commercial Bank of Ireland 
stopped payment ; that brought on a run for gold upon the other banks, 
and thus the circulation of those banks became reduced. This is the 
only year in which there is not a very considerable increase in the circu- 
lation of the joint-stock banks of Ireland between August and December. 

" To what do you attribute this uniform increase of the Irish circula- 
tion towards December ? — I attribute it to the trade in corn, and bacon, 
and cattle, which commences in the months of September and October in 
every year ; the produce of the harvest commences to be brought to 
market in September ; but the bacon is made in the beginning of Octo- 
ber. The bacon must be made in cold weather, and therefore pigs are 
reared so as to be fit for killing by the 1st of October ; and in the begin- 
ning of October the provision merchants send out their men to purchase 
pigs at the different markets, and they get notes from the bank. The 
cattle trade is conducted in the same way ; men go to the market to buy 
pigs and cattle, and take them over to Bristol and Liverpool, but chiefly to 
Bristol, from the part where I was. Those notes are chiefly issued in 
three ways. During the summer, the merchants, having their capital un- 
employed, lodged it as deposits in the bank ; then, when the season for 
trade commenced, they drew out their deposits, in the form of notes. 
Afterwards, they brought us bills upon their factors in London, and our 
notes were issued in discounting those bills which they had drawn against 

374 



Currency in Ireland. 

the expectations of bacon and cattle. The dealers took their pigs and 
cattle over to Bristol, and sold them in the various markets and fairs in 
the west of England, and received the notes which were circulating in 
that district, and took them to Mr. Stuckey, and got a letter of credit upon 
me, payable on demand, for the amount. So that our notes were issued, 
in the first place, by the withdrawal of deposits ; secondly, for the dis- 
counting of bills on London, drawn against the exports which were made ; 
and thirdly, for the payment of letters of credit which had been obtained 
by the parties who had sold Irish cattle in the English markets. The 
notes were, therefore, drawn out by the trade of the country, and of 
course it was not in our power to withhold issuing those notes, unless we 
wished to cramp the trade of the country." 

Robert Murray, Esq., the chief officer of the Provincial Bank of Ire- 
land, was examined as to the establishment of one Bank of Issue through- 
out Ireland. The following is his reply : — 

" It would produce an entire revolution in the monetary affairs of Ireland. The 
committee will already have gathered from the questions I have previously answered, 
that the produce is brought to market in very small quantities, and by a very large num- 
ber, I had almost said an innumerable class, of farmers ; each man brings his sack of 
oats and two or three pigs to market. It would be almost impossible, in such a state 
of things, to regulate by one bank of issue the monetary affairs of Ireland, or to adapt 
it to its purposes as it is now situated." 

The following is the report of the Select Committee of the House of 
Commons, made in 1826, respecting the abolition in Ireland of notes 
under £ 5 : — 

" With respect to the circulation of Ireland, the inquiries of your committee have 
been less extensive than those which they have instituted with respect to Scotland. 

" The first law in Ireland which restrained the negotiation of promissory notes, was 
an Act passed in the Irish Parliament in the year 1799. 

" The preamble recites, that various notes, bills of exchange, and drafts for money, 
have been for some time past circulated in lieu of cash, to the great prejudice of trade 
and public credit ; and that many of such notes are made payable under certain terms, 
with which the poorer classes of manufacturers and others cannot comply, unless by 
submitting to great extortion and abuse. It adds, that the issue of such notes has 
very much tended to increase the pernicious crime of forgery; and the Act proceeds 
to apply to notes between the value of £ 5 and 20s. similar restrictions to those which 
had been applied to such notes issued in England by the Act which passed in the year 
1777. It permits, however, during the suspension of cash payments by the Bank of 
Ireland, the issue of bank-post bills, bills of exchange, and drafts under certain regu- 
lations, for any sums not less than three guineas. This Act did not extend to the 
Bank of Ireland. 

" In 1805, this and some other Acts which had passed in the interim, relating to the 
issue of small notes, were repealed ; and notes under 20s., which had been previously 
admitted under certain regulations by the Act of 1799, were declared void. 

" There is at present no law in force imposing any limitation to the period for 
which notes for a sum not less than 20s. may be issued in Ireland. 

" A tolerably correct estimate of the amount of promissory notes, above and below 
£ 5, circulating in Ireland, may be formed from the subjoined returns made by the 
Bank of Ireland, and by other banks at present established in that country. 

" Bank of Ireland notes. — An account of the average amount of the Bank of Ire- 
land notes of £5 and upwards (including bank-post bills) for the years 1820, 1821. 
1822, 1823, 1824, and 1825 : — 

Z 375 



A Treatise on Banking. 

Irish Currency. 
£ s. d. 

" Notes and post bills of £ 5 and upwards, . . . 3,646,660 19 6 

" An account of the average amount of the Bank of Ireland notes under the value 
of £5 (including bank-post bills) for the years 1820, 1821, 1822, 1823, 1824, and 
1825: — 

Irish Currency. 
£ s. d. 

" Notes and post bills under the value of £ 5, . . . 1,643,828 5 

" It appears from the evidence that a practice prevails in Ireland of issuing notes for 
the payment of sums between one and two pounds, for three guineas, and other frac- 
tional sums. 

4i Your committee see no public advantage arising out of this practice ; and they are 
of opinion that it ought to be discontinued, as it tends to dispense with the silver coin, 
and practically to exclude it from circulation. 

" Ypur committee hesitate, in the present imperfect state of their information, to 
pronounce a decisive opinion upon the general measures which it may be fitting to 
adopt with respect to the paper currency of Ireland. 

" Although they are inclined to think that it would not be advisable to take any im- 
mediate step for the purpose of preventing the issue of small notes in Ireland, their 
impression undoubtedly is, that a metallic currency ought ultimately to be the basis of 
the circulation in that country. 

" It will probably be deemed advisable to fix a definite, though not an early peiiod, 
at which the circulation in Ireland of all notes below £ 5 shall cease ; and it is deserv- 
ing of consideration, whether measures might not be adopted in the interim, for the 
purpose of insuring such a final result by gradual though cautious advances to- 
wards it." 

The following is a summary of the evidence given before the Commit- 
tees of the two Houses of Parliament as to the effect of abolishing the 
small note circulation in Ireland : — 

1. Small currency is necessary to carry on the commercial transac- 
tions of the country. 

John Acheson Smyth, Esq., Agent for the Belfast Bank at Londonderry. 

" In Lancashire, I believe all the raw materials are bought in large parcels, and by 
bills. In Ireland, the raw material is all bought in small parcels, and all in small 
notes. In Lancashire, there is only cash wanted to pay the workmen ; but we want it 
both to pay the workmen and to buy the raw material. The provision and grain that 
we send to England are also bought in small notes, and we are reimbursed by drawing 
bills for our shipments." {Commons' Report, p. 77.) 

Pierce Mahont, Esq., Solicitor to the Provincial Bank of Ireland. 

" If the banks were prevented issuing notes under the amount of £ 5, would any in- 
conveniences arise in conducting the trade of the South of Ireland ? — The trade of 
Ireland generally, and especially in the South of Ireland, would be greatly inconve- 
nienced, and the growth of manufactures would be decidedly checked, if not destroyed, 
by such a measure. From the great subdivision of land in Ireland, and particularly 
in the South and West (where the population is almost exclusively agricultural), the 
produce is disposed of in small portions, scarcely ever representing £ 5, and almost 
universally under that amount. I am of opinion, that the withdrawal of all notes under 
that amount would have the effect of curtailing the accommodation the banks now af- 
ford to the public, to a ruinous extent ; and that the trade of the country under such cir- 
cumstances would not afford profitable employment for banking capital to any extent ; 
and, therefore, I should anticipate the withdrawal of such establishments, except per- 
haps at Cork and Belfast. In the South and West of Ireland, from the nature of the 

376 



Currency in Ireland. 

provision and corn trade, the chief demand for notes or for gold commences in Octo- 
ber, and continues until March, when that trade is nearly over for the season. From 
March until October the butter trade is almost the only one in the South and "West of 
Ireland ; and as that trade would not employ all the capital that is required in the win- 
ter season, the effect would be, if sovereigns were substituted for small notes, that the 
extra supply required for the corn, beef, and pork trade, must remain idle in the bank- 
er's chest, or be remitted at great risk and expense for employment elsewhere during 
the summer and autumn. 

" Do you think if a metallic circulation were adopted that there would be a difficulty 
in maintaining that metallic circulation ! — I do ; because the trade in the South and 
"West of Ireland is periodical ; the remittances from those districts of Ireland would 
force the gold away at certain periods, and it must be returned at others with consider- 
able expense to meet the trade of the country." {Commons' Report, pp. 250, 251.) 

2. A gold currency would be more inconvenient than notes, and would 
not be so well liked by the people. 

Leonard Dobbin, Esq.* Agent for the Northern Banking Company of Belfast, at Ar- 
magh. 

" Do the people of the North of Ireland manifest any wish for gold in preference to 
notes, or for notes in preference to gold? — They decidedly prefer notes, and the 
weavers have refused to carry gold out of the market lately. 

" Can you assign any reason for this preference 1 — There are many reasons that I 
could assign. The bank notes are now the established currency ; the people are per- 
fectly acquainted with them. If a man should lose notes, or a house be robbed, or if 
there is a forgery, it would be much better for them to trace notes than it would gold 
I have often assisted poor people in tracing notes that were robbed, and forged notes, 
whereas the gold could not be traced so readily. Another reason I would give is this; 
guineas became light, and were troublesome to the people. When standing beam 
there was Is. charged, and when lighter than standing beam, 2s. 6d. ; and when gold 
was scarce, and bank notes not a legal tender, the land agents refusing to take any 
thing but gold, the tenants were obliged to pay from Is. to 4s. on a guinea discount 
Some agents would only take gold." {Commons' Report, p. 243.) 

J. A. Smyth, Esq., Linen Merchant, and Agent for the Belfast Bank at Londonderry. 

" I am in the habit of employing my linen buyers to go to the country markets, and 
I must supply them with the week's money before they start, perhaps five hundred or 
a thousand pounds ; they have to go through the interior of the country, and do not 
return for a week. They make their purchases all in small quantities, and it is more 
convenient for them to carry notes than gold." {Lords' Report, p. 7.) 

Arthur Guiness, Esq., Director of the Bank of Ireland. 

" I conceive that with the persons who handle the circulation of the country, there is 
a decided preference in favor of small notes over cash in every respect. I speak from 
mine own experience ; for I remember perfectly well, before the restrictions upon cash 
payments, when gold was a great inconvenience in trade. I speak of those who handle 
the currency of the country, among whom I think the preference is in favor of the 
small notes, as more convenient, more portable, and less liable to counterfeit. I con- 
ceive these to form the general ground of preference." {Commons' Report, p. 237.) 

3. The profits of the banking establishments would be so much dimin- 
ished, that they could not extend the same accommodation to the agricul- 
tural and commercial classes. 

W. P. Lunnel, Esq., Director of the Bank of Ireland. 
" If the notes under £ 5 were prohibited, would the profits of the Bank of Ireland 

* This gentleman was afterwards agent for the Bank of Ireland at Armagh, and 
M. P. for that place. 

377 



A Treatise on Banking. 

be materially affected by such prohibition ? — I should expect that they would suffer 
they must sacrifice a certain profit. 

" Have you considered to what extent the profits of other bankers would be affected ? 
— I should expect that the principal circulation of the country bankers is in small 
notes, and therefore in that proportion they would suffer." (Lords' Report, p. 108.) 

John Holmes Houston, Esq., Banker at Belfast. 

" If all the notes under £5 were prohibited to be issued, would it be worth while, in 
your opinion, to keep the establishment of a bank at Belfast? — I do not think it 
would, except by carrying it on in the same manner as it formerly was, — to keep a 
discount office, charging a commission on discounting bills, because £5 notes would 
not circulate ; then our circulation would be so trifling it would not answer." (Ibid, 
p. 35. 

H. A. Douglas, Esq., Director of the Provincial Bank of Ireland. 

" I consider the cash account system, and the one pound circulation so connected, 
that if the notes are withdrawn, it is understood that our establishment will not grant 
any further cash credits. The business which we cany on, even if we charged a higher 
rate of interest, or a commission, would not be of sufficient magnitude to repay us for 
the expense of our establishment, independent of our notes. If the issue of small notes 
be withdrawn, then we cannot afford to allow interest on deposits." (Lords 1 Report, 
pp. 24, 26, 27.) 

4. The abolition of small notes would prevent the investment of British 
capital in the present banking establishments. 

T. S. Rice, Esq., M.P., and Director of the Provincial Bank of Ireland* 

" Is it your opinion, that if all notes under £ 5 were abolished, a considerable incon 
venience would arise in the ordinary traffic in Ireland? — I conceive that it would. I 
conceive that the first effect of the extinction of all notes below £ 5 would be a much 
more considerable diminution of the general mass of the circulating medium in Ireland 
than in England. 

"I fear extremely that if any thing were to occur which materially diminished the 
profits of our establishment, it would have the effect of depriving us of one of the chief 
benefits of the establishment, namely, the support and control of British capitalists, 
and conducting the bank by British merchants, and upon British commercial princi- 
ples. I conceive a rate of profit, rather higher than the average rate of profits, is es- 
sential to induce persons so circumstanced to engage in such a business, more particu- 
larly when it is considered that there is no limitation of responsibility by the grant of 
charters." (Lords' Report, pp. 47, 51.) 

5. The gold currency would be sent out of the country, whenever it 
bore a premium in England. 

Henry H. Hunt, Esq., Local Director of the Provincial Bank of Ireland, at Waterford. 

" What do you think would be the consequence of a law which prohibited the issue 
of notes below £ 5, both by the Bank of Ireland and by any other banking establish- 
ment in Ireland 1 — I should think it would be very hazardous indeed : I should very 
much apprehend that the gold circulation would at times be icithdrawn in a very great 
degree from the country, whenever gold was wanted in London ; for instance, a small 

PREMIUM UPON A SOVEREIGN WOULD INDUCE A VAST QUANTITY OF THEM TO BE 
BROUGHT OUT OF IRELAND. 

" Have you ever known instances of quantities of gold being brought over from Ire- 
land to this country, and persons making a regular traffic of it ? — I have." ( Com- 
mons' 1 Report, pp. 73, 74.) 

6. The proposed measure would cause general distress, and prevent 
the progress of enterprise. 

* Now Lord Monteagle. 
378 



Currency in Ireland, 

John Robinson Pim, Esq., General Merchant in Dublin. 

" The yery idea of curtailing the currency under £ 5 would have a tendency to dis- 
courage all adventure in Ireland at present. I should not, for one, he careful of plac- 
ing money in any kind of machinery till the effect was tried. I fancy it would reduce 
property very much in that country, — and sometimes fancies are almost as bad as 
reality." (Lords' Report , p. 19.) 

The following table was given in by Mr. Murray to the Committee of 
the House of Lords, showing the circulation of Ireland since the passing 
of the Act of 1845: — 

Abstract of the Returns by the several Banks or Issue in Ireland under the Pro- 
visions of the Act Sth Sf 9th Victoria, cap. 37. From 3d January, 1846, to 20th May, 
1848. 



For the 
Four Weeks 
ended 
1846. 
3d Jan. . . 
31st Jan. . 
28th Feb. . 
28th March, 
25th April, . 
23d May, . 
20th June, . 
18th July, . 
15th Aug. . 
12th Sept. . 
10th Oct. . 
7th Nov. . 
5th Dec. 

1847. 
2J Jan. 
30th Jan. . 
27th Feb. . 
27th March, 
24th April, . 
22d May, . 
1 9th June, . 
1 7th July, 
14th Aug. . 
11th Sept. 
9th Oct. 
6th Nov. . 
4th Dec. 

1848. 
1 st Jan. 
29th Jan. . 
26th Feb. . 
25th March, 
22d April, . 
20th May, 



Certified 
Issue of all 
the Banks. 

£ 
6,354,494 
6,354,494 
6,354,494 
6,354,494 
6,354,494 
6,354,494 
6,354,494 
6,354,494 
6,354,494 
6.354,494 
6,354,494 
6,354,494 
6,354,494 



6.354,494 
6;354,494 
6,354,494 
6,354,494 
6,354,494 
6,354,494 
6,354,494 
6,354,494 
6,354,494 
6,354,494 
6,354,494 
6,354,494 
6,354,494 



6,354,494 
6,354,494 
6,354,494 
6.354,494 
6,354,494 
6,354,494 



Notes of £ 5 

and 
upwards. 

£ 
3,039,855 
3,052,163 
3,066,529 
3,071,589 
3.170,291 
3;223,469 
3,072,053 
3,003,914 
2,959,671 
3,013,054 
3,183,979 
3,335,209 
3,273,326 



Notes 
under £5. 

£ 
4,364.509 
4,353,583 
4,403,193 
4,373,371 
4.366,031 
4;i98,610 
3,899,973 
3.682,577 
3,520,844 
3,575,113 
4,067,575 
4.501,616 
4;566,204 



3,151,117 
3,161,701 
3,153,358 
3,123,516 
3,163,465 
3,036,115 
2,835,513 
2,740,914 
2,670,376 
2,581,063 
2,636,692 
2,714,939 
2,597,237 



2,502,756 
2,528,633 
2,510,595 
2,505,565 
2,540,489 
2,561,459 



4,364,295 
4.097,724 
3,871,694 
3,581,218 
3,357,763 
2,932,305 
2,629,436 
2,516,464 
2,426,869 
2,467,246 
2,718,920 
2,804,374 
2,725,502 



2,693,357 
2,705,281 
2.709,483 
£601,829 
2,468,542 
2,279,211 



Total Issue 

of all the 

Banks. 

£ 
7,404,366 
7,410,751 
7,469,729 
7,444,960 
7,536,323 
7,422,080 
6,972,026 
6,636.491 
6,4S0,517 
6,538,175 
7,251,555 
7,836,825 
7,839,530 



7,515,414 
7,259.426 
7,030,053 
6.704,736 
6^21,234 
6,018,420 
5,464.951 
5,257,378 
5.097,245 
5,043,310 
5,355,613 
5:519.314 
5,322,741 



5,196,116 
5.233,916 
5;220,030 
5,107,395 
5.009,033 
4:840,672 







Total Specie 


Gold held. 


Silver held. 


held by all 
the Banks. 


£ 


£ 


£ 


2,221,944 


267.303 


2,489,254 


2.232,887 


293,145 


2,531,032 


2;262,714 


304,582 


2,567,300 


2,246,022 


322,131 


2,568,158 


2,204,748 


321,861 


2,526,613 


2,177,633 


321,310 


2,498,945 


2,082,018 


332,981 


2,415,002 


1,908,216 


358,567 


2,266,786 


1,887,457 


376,335 


2.263.795 


1,832,938 


3491980 


2,132,922 


1,894,453 


345,812 


2,240,267 


2,131,587 


353,447 


2,485,034 


2,253,124 


316,467 


2,569,595 


2,264,266 


343,740 


2,608,013 


1,999,140 


384,091 


2,383,236 


1,795,792 


383,389 


2.179,184 


1,710,405 


403,693 


2,114,100 


1,547,530 


445,010 


1,992,545 


1,162.163 


520,506 


1,6S2,632 


1,028:579 


520,299 


1,548,882 


993,810 


563,524 


1,557,337 


969,590 


597,627 


1,567,221 


966,818 


565,399 


1,532,222 


1,006,066 


511,643 


1,517,712 


1,045,805 


490,718 


1,536,526 


1,087,074 


503,692 


1,590,770 


1,112,955 


505,800 


1,618,760 


1,132,937 


531,806 


1,664,746 


1,144,032 


562,846 


1,706,882 


1,095,722 


584,711 


1,680,437 


1,071,297 


551,563 


1,622,868 


1,087,162 


601,318 


1,588,485 



93,235,610 109,329,727 203,065,375 51,556,884 13,740,306 65,297,310 



Averages of the preceding Returns. 

Notes of £5 Notes un- p-,.i r .,. 

and upwards, der £ 5. TotaL Gold - 

£ £ £ £ 

Average for whole Period . . 2,913,612 3,432,178 6,345,791 1,611,152 

Average for the year 1846 . . 3,121,259 4,144,461 7,265,721 2,106,004 

Average for the year 1847 . . 2,844,049 2,936,375 5,830,425 1,263,517 

A of r i£ e 6 f0r . thefirSt FiveM ° nUlS ( 3,116,809 4,339,958 7,456,768 2,224,800 

AV o e n847 f0; . the ^ r8ttiVeM ° nih3 i 3 ' 138 ' 631 3 > 563 ' 141 6,706,773 1,643,006 

AV o e fll48 f0r thC ^ * lVG M ° nlhS \ 2 ' 529 ' 348 2.652-869 5,082,219 1,106,230 

379 



Silver. 

£ 
429,334 

334,258 

491,953 

313,605 
427,337 
546,449 



Total 

Specie. 

£ 

2,040,540 
2,440,266 
1,755,475 

2,538,409 
2,070,349 
1,652,683 



A Treatise on Banking. 

The last Return of the Circulation of Ireland is as follows : — 

Average Circulation and Coin held by the Irish Banks during the four weeks 
ending Saturday, the 24th day of March, 1849. 

Average 
Average Circulation during Four Amount of 
Weeks ending as above. Gold & Silver 
Coin held 
Names of Bank* Authorized £5 and Under T . during Four 

INames oiuanira. Circulation, upwards. £5. lotaL Weeks ending 

as above. 

£ £ £ £ £ 

Bank of Ireland 3,738,428 1,671,200 927,450 2,598,650 809,690 

Provincial Bank . . * . . . 927,667 282,439 384,053 666,492 357,864 

Belfast Bank 281,611 29,997 186,426 216,423 110,829 

Northern Bank 243,440 23,287 148,251 171,538 94,086 

Ulster Bank 311,079 19,025 181,371 200,396 57,847 

National Bank 761,757 197,173 303,340 500,514 257,072 

Carrick-on-Suir National Bank . . 24,084 3,8S8 6,073 9,962 3,738 

Clonmel National Bank . . . 66,428 17,501 20,274 37,775 17,731 

Totals . . . 6,354,494 2,244,510 2,157,238 4,401,750 1,708,857 

We have noticed the different meanings given to the word " circula- 
tion " in England, since the passing of the Act of 1844. By the Act 
of 1845, it is enacted that this word shall have the following meaning in 
Scotland and Ireland : — 

" Section 17. — And be it enacted, That all bank notes shall be deemed to be in cir- 
culation, from the time the same shall have been issued from any banker, or any ser- 
vant or agent of such banker, until the same shall have been actually returned to such 
banker, or some servant or agent of such banker." 

It may be useful to trace the effects of this Act (the Act of 1845, 8 
& 9 Vict. c. 37) upon the state of banking in Ireland, as compared with 
the effects of similar enactments in Scotland and England. 

1. The limitation of issue in Ireland, as in Scotland, is not absolute. 
The banks may issue beyond this limit, if they retain an amount of gold 
and silver equal to this excess. In England the prohibition is absolute. 
The probable effect will be, that these enactments will not lead to any 
permanent decrease of the circulation in Ireland or Scotland. The banks 
will merely import more gold when the circulation increases. In Eng- 
land it seems probable that the circulation will permanently decrease. 
Means will be employed to conduct banking operations with fewer notes, 
and these means will operate at all times, when the circulation is low, 
as well as when it is high. 

The provision of the Act of 1845, which requires the banks of Scot- 
land and of Ireland to keep an amount of gold equal to the notes in circu- 
lation beyond the fixed limits, tends, as we have observed, to restrict the 
granting of cash credits in Scotland. We doubt if it will have an equal 
effect in Ireland, simply because the cash-credits exist only to a limited 
extent. The Provincial Bank introduced the system in 1825 ; and no 
system could be better adapted to the state of the country. It would 
doubtless have greatly improved the condition and the habits of the peo- 
ple ; but the iniquitous runs for gold which, at the suggestion of reckless 

380 



Bank Circulation. 

politicians, took place in 1828, 1830, 1831, and 1833, compelled the 
banks to restrict their operations. Had the banks remained without mo- 
lestation, the whole of the agricultural districts of Ireland would probably 
by this time have had the benefits of this system, with the same benefi- 
cial results which have been realized in Scotland. 

2. In Ireland these measures will not tend to produce so great an in- 
crease of gold as in Scotland. In Scotland the banks, previous to the 
passing of the Act, kept but a small amount of gold. But in Ireland the 
banks, from their liabilities to runs, have always kept large deposits of 
gold. The amounts required by the Act are not larger than those for- 
merly kept in their vaults. It appears from the returns, that the Bank of 
Ireland has recently kept a smaller amount than before the passing of the 
Act. Hence their means of affording accommodation are not dimin- 
ished ; and as they sustain no loss, they have no reason for increasing 
their charges. It may, however, confirm the Irish banks in their regula- 
tion not to give interest on current accounts. Nowhere throughout Ire- 
land is this system now followed. The Bank of Ireland gives no interest 
on any class of lodgments. The joint-stock banks allow it only on depos- 
it receipts. The reason assigned by the Scotch banks was that the oper- 
ations on these accounts maintained in circulation a large amount of their 
notes. This will be no advantage if the bank must retain an amount of 
gold equal to this increase of notes in circulation. 

3. The prohibition of new banks of issue has operated variously in the 
three countries. In Ireland it was beneficial; in Scotland it has been 
harmless ; and in England it is injurious. The Agricultural Bank of Ire- 
land caused considerable mischief. To prevent the recurrence of such 
evils, the most effectual way was to prohibit the formation of new banks 
of issue. Hereafter this restriction may become oppressive. Cork, and 
Limerick,. and Waterford may become sufficiently wealthy to supply a 
banking capital, and may wish to form local banks. The local banks at 
Belfast have conferred great benefits on the north of Ireland. In Scot- 
land the banks are sufficiently numerous ; and, as they are allowed to 
unite, the authorized issue of notes is never likely to be less than it is. 
And although restrictions on banks are unsound in principle, they may 
not at present do any harm in Scotland. In England the restriction is in- 
jurious. Had we an unlimited power of forming new banks, many of 
those firms that now consist of not more than six partners would be 
merged in larger establishments. The number of banks would be less, — 
the amount of their issues would probably be less, — but they would attract 
a higher degree of public confidence, and their character and continuance 
would not be dependent upon the lives of individual partners. 

4. Unions of Banks in either Ireland or Scotland are not very likely, 
nor perhaps desirable. The banks are large, have a respectable capital, 
and enjoy the public confidence. In England, many banks are small, and 
have small capitals. Union among them would be highly beneficial. 
Yet such is the waywardness of legislation, that the Acts of 1844 and 
1845 give facilities to unions in Ireland and Scotland, and restrict them 
in England. In Ireland and Scotland two banks of issue may unite, and 
the united bank have the united circulation. In England, if two banks of 

381 



A Treatise on Banking. 

>, either of which has more than six partners, should unite, the circu- 
lation of one or both of these banks would be lost. 

5. The Act passed in 1844, for the regulation of joint-stock banks in 
England, was extended in 1846 to Scotland and Ireland, with the omission 
of the clause that rendered the banks subject to the laws of bankruptcy. 
By a clause in these Acts, any bank for the formation of which proceed- 
ings had been taken before the 6th May, and which was actually in busi- 
ness on the 4th of July, must at the end of a year after the passing of the 
Act either retire from business or take a charter. The Preston Banking 
Company was in this case, and accordingly became a chartered bank. 
This is the only bank that has a charter under the Act in England. The 
Exchange Bank of Scotland was in a similar case, and on the 31st of De- 
cember, 1846, became a chartered bank. There is no bank of this kind 
in Ireland. 

From the extracts we have made from the Act at p. 308, it will be 
seen that no new joint-stock bank can be formed of a less nominal cap- 
ital than £ 100,000, and half the capital must be paid up before the com- 
mencement of business ; that the assets and liabilities of the company 
must be published once at least in every month ; and that at least one 
fourth of the directors shall retire yearly, and shall not be eligible for 
reelection for at least twelve calendar months. As a specimen of the 
monthly returns required, we copy from the London Gazette the last re- 
turn of the Preston Banking Company : — 

Account of the Assets and Liabilities of the Preston Banking Company, at 
Preston, on Saturday the 1th day of April, 1849. 

Assets. Liabilities. 

Bills of Exchange, Bank Premises, Prelim- Capital stock . . £100,000 

inary Expenses, Loans, &c, Cash in Deposits, and other Lia- 

Bank, and Deposits in other Banking bilities . . . 206,899 4 3 

Establishments . . £309,658 2 1 Undivided Profits . . 2,758 17 10 



£309,658 2 1 £309,658 2 1 

That provision of the act which requires one fourth of the directors to 
retire annually, and which declares them ineligible for election for one 
year, has been the subject of much discussion. The object of the Legisla- 
ture appears to have been to prevent those evils which, in public compa- 
nies of every kind, occasionally arise from the undue ascendency of indi- 
vidual directors. Practically, it may be injurious or advantageous to a bank, 
according to circumstances. On the one hand, it may deprive a bank of 
the services of its most useful directors for one year. And on their return, 
they may be less useful than heretofore, from being less acquainted with 
the transactions that have taken place during their absence. In small 
country banks it might not be easy to find other parties to take the places 
of the directors who had thus retired. On the other hand, it has been con- 
tended that the number of the directors, and consequently their influence, 
would thus be virtually increased, — that, while on some occasions the 
most clever directors would be compelled to retire, at other times the 
least clever would retire, and their places might be better supplied, — that 
ihe retirement of even the most clever might call forth the energies of the 

382 



Ireland Bank Circulation. 

others, and thus the talents of the whole might be improved, — that the 
plan tends to prevent the undue ascendency of any individual director, or 
of any knots or parties of directors, for any length of time, — and that it is 
a convenient means of getting rid of an inefficient, injurious, or disagree- 
able director : for, as when he is once out, it would be easy for the board, 
if so disposed, to prevent his reelection. By the charter of the Bank of 
Ireland, fifteen directors are chosen annually, and not above two thirds of 
the directors of the preceding year can be reelected. 

6. There is another difference between Scotland and Ireland with ref- 
erence to banking operations, though it does not arise from the above- 
mentioned Act. At the time of the union between England and Ireland, 
Ireland had her debts as well as England. And although England be- 
came liable for these debts, the dividends continued to be paid, and the 
transfers made in Dublin. Hence Government stock is bought and sold 
there in the same way as in London. Besides this, any party may pur- 
chase stock in Ireland, and have it transferred to England, or the reverse. 
The plan is this : — Any person holding stock may go to the Bank 
of England, either personally or by power of attorney, and get a ticket 
that will authorize him to have the same amount of stock put in to his 
name in Ireland. The stock in England is then transferred to the com- 
missioners for the reduction of the National Debt. He may go to the 
Bank of Ireland in Dublin and reverse the operation. Several Acts of 
Parliament have been passed with reference to this subject. The last is 
the 5th Geo. IV. c. 53, passed in the year 1824. When there is a great 
difference in the price of stocks in the two countries, operations of this 
kind may be very profitable. 

This power of transferring government stock from one country to the 
other has a tendency to equalize the price in both countries. It also 
serves the purpose of a medium of exchange. A transmission of stock 
has the same effect in rectifying the exchanges as a transmission of gold. 
And, doubtless, the exchanges between England and foreign countries 
might, to a great degree, be adjusted in the same manner. 

There is a Stock Exchange in Dublin similar to that of London, estab- 
lished for the purchase and sale of Government stock, bank stock, railway 
shares, &c. No person can transact business there unless he has ob- 
tained a license from the Lord Lieutenant. The number of these persons 
is at present about twenty-five. There are no time-bargains as in London. 
The borrowing and lending of money on stock are matters of daily occur- 
rence. This is not always done through brokers. Individuals often effect 
these transactions directly with the banks. The general rule is, that the 
lender shall have a margin of 5 per cent, on the value of the stock, and 
shall be entitled to call for additional security whenever the market price 
falls below that difference. 

The Exchanges between the Banks 

Since the Act of 1845 — when other banks besides the Bank of Ireland 
acquired the power of issuing notes in Dublin — a system of clearing, or, 
as it is called, of exchanges, has been established, similar to that estab- 
lished in Edinburgh. 

383 



A Treatise on Banking. 
The following is a copy of a clearing balance-sheet : 



Balances of Exchanges with other Banks, on 



1849. 



DUE TO IT. 


WITH 


DUE BY IT. 








Bank of Ireland. 
Provincial Bank. 
National Bank. 
Northern Bank. 
Belfast Bank. 
Ulster Bank. 





















Here we may observe that all the banks that clear are banks of issue ; 
and the clearing in Dublin includes all the banks of issue in Ireland, al- 
though three of these banks have their head quarters in Belfast. The 
Belfast banks clear by their agents. The Bank of Ireland is the agent 
for the Northern Bank and the Belfast Bank, and the Royal Bank of Ire- 
land is the Dublin agent for the Bank of Ulster. It will also be observed 
that the Bank of Ireland — the chartered bank — is a member of the 
clearing ; and, in fact, the clearing is held daily, at two o'clock in one of 
the rooms of that establishment. The differences are paid daily, like 
those at Edinburgh, in exchequer bills. The following are the amounts 
required to be held by each bank : — 

The Bank of Ireland, £134,000 

The Provincial Bank, 58,000 

The National Bank, 48,000 

The Northern Bank, , 30,000 

The Belfast Bank, 30,000 

The Ulster Bank, ........ 30,000 

£ 330,000 

Those banks in Dublin that are not banks of issue are not members of 
the clearing. Although the Royal Bank of Ireland attends the clearing 
as the agent of the Ulster Bank, it does not clear on its own account. All 
the non-issuing banks, however, have accounts with the Bank of Ireland, 
and pay into that establishment the cheques they may have on the other 
banks. The National Bank, though an issuing bank, and a member of 
the clearing, has no account with the Bank of Ireland. 

This system of clearing appears to work very satisfactorily. The fol- 
lowing is an extract from a letter I received a few days ago from an Irish 
banker, on the subject : — 

" The settlement of our ' exchange balances ' in Dublin, through the use of excheq- 

384 



Irish Bank Exchanges. 

er bills, works very well. The great evil, previously, was, that when these balances 
'ere of magnitude, Dublin was such a limited money market there was difficulty and 
xpense in raising the needful quantity of Irish money for the purpose. If you antici- 
ated the balance to be heavy against you, it was requisite to prepare some time before, 
nd to have your funds lying idle and unproductive until the crisis arose. Now, we 
ave exchequer bill interest for our surplus, and the power of replenishing our stock ac- 
ount whenever required by drawing on London, thus possessing the unbounded advan- 
ces of the greatest money market in the world. In point of fact, the arrangement has 
irtually changed the venue, and made London the actual and final place of settlement, 
trough machinery worked in Dublin." 

The following are the " Regulations for making exchanges between 
he several banks in Ireland, at Dublin, and for settling the balances of 
uch exchanges, at Dublin ; to take effect from and after the 8th day of 
December, 1845." 

" 1. The exchange shall be made daily at two o'clock, p.m. 

" 2. The payments of the balances shall be made in exchequer bills, except for the 
fractional parts of £ 500 which may be paid in the notes of the particular bank debtor. 

" 3. The exchequer bills shall be filled up in favor of the bank who may be the orig- 
inal holders, and shall bear the distinguishing mark of ' Dublin Exchange Bills,' show- 
ing that they belong to the Dublin exchanges, and are not intended to be used for any 
other purpose, and shall be received at par, with the interest that may be due when the 
transfer takes place. 

" 4. The amount of exchequer bills to be kept in the circle is fixed at £ 330,000, to 
be apportioned amongst the following banks in fixed sums, calculated in their respec- 
tive amounts of circulation : — 

NAMES OF BANKS. 

Bank of Ireland. Northern Bank. Ulster Bank. 

Provincial Bank. Belfast Bank. National Bank. 

The sums being once fixed, each bank is to maintain its quota at all times, as herein- 
after provided. 

" 5. Nine tenths of the exchequer bills to be of £ 1,000, and one tenth of £ 500. 

" 6. The amount of exchequer bills held by each bank shall be stated every day in 
the Clearing- room. 

"7. It is expedient that no bank shall be obliged permanently to hold more exche- 
quer bills than a surplus of one third above the fixed amount, nor shall be allowed to 
reduce the amount held more than one third below the fixed amount ; but as the ex- 
chequer bills will accumulate with some of the banks, and be required by others, it 
shall be imperative on the parties so situated to sell or buy exchequer bills ; that is to 
say, the bank holding the greatest amount of exchequer bills shall be bound to sell to 
the bank in want of them, what may be required for the legitimate purposes of the ex- 
changes ; but it shall not be imperative on that party to sell a greater amount than 
what will reduce their stock to the original quota, and the purchaser shall be bound to 
take bills from those parties having the greatest proportionate amount of them beyond 
their respective original quota. 

" 8. The preceding regulations will tend in a great degree to equalize the amount of 
exchequer bills ; but if exchequer bills shall nevertheless accumulate in the hands of a 
bank, so as to exceed their original quota by more than one third, that party shall have 
the power to call upon the party or parties holding the smallest amount in proportion 
to their quota to purchase the excess — that is to say, the excess above their quota — 
plus one third ; but it shall not be imperative on any party to take more than is re- 
quired to bring up their stock to two thirds of the original amount. 

" In this way the fluctuation in the amount of exchequer bills amongst the different 
banks, which is an essential part of this arrangement, need never permanently exceed 
one third more or one third less than the original quota of each bank. 

" The terms of purchase to be governed by the next regulation. 

" 9. The bank seeking to buy, or being called upon to buy, exchequer bills, from the 
bank or banks holding in excess of their quota, shall pay for the purchase by a Letter 
of Credit on their London correspondent, demandable on the fifth day after the date 

385 



A Treatise on Banking. 

thereof, the purchaser paying Is. 3c?. per cent, on the amount of the Letter of Credit •, 
or to pay the amount in gold in Dublin, at the option of the holders of the bills. 

" 10. The exchequer bills to be used for the Dublin exchanges are to be as nearly as 
possible divided into the two dates of March bills and June bills, which are to be ex- 
changed at the Paymaster-General's Office here before due, and new ones to be pro- 
vided, so as to keep up the stock in the circle ; and no exchequer bills advertised to be 
paid are to be used in the exchanges. 

"11. Each bank is to be always liable to the income-tax on the interest of its origi- 
nal quota of exchequer bills, and no more ; and the exchequer bills advertised to be 
renewed are, within a week after the Government notice appears in the Gazette, to be 
given up to the original holders, upon receiving other bills not advertised, failing which, 
a Letter of Credit on London, demandable on the fifth day from its date, subject to the 
charge as stated in No. 9, is to be given, or the amount to be paid in gold, at the op- 
tion of the holders of advertised bills. 

" 12. The exchanges are to be made at the Bank of Ireland, who undertake to pay 
those banks who are creditors in the exchange the exchequer bills or bills of exchange 
received from those banks who are debtors in the exchange ; but the Bank of Ireland 
shall not be in any way responsible for the exchange transactions, or otherwise soever. 

"13. The statement of the balances after they are struck to be sent to their respec- 
tive banks from the Clearing-room, by their clerks ; and the clerks of banks creditors 
to be in -waiting to receive the amount due to them at two o'clock. 

" 14. Any bank a party to this agreement to have the power of withdrawing from 
it, and receiving back their exchequer bills at par, upon payment of them if needful, 
upon giving three months' notice. 

"15. No bank a party to this arrangement shall, after the 8th of December, 1845, di- 
rectly or through any agent, demand gold from or pay gold to any other bank or 
banks parties to this arrangement, except as hereinbefore provided, unless under spe- 
cial agreement between any two of the banks they mutually arrange to pay and re- 
ceive a sum of gold. 

" It is assumed that each bank always has its statutory amount of gold, and if any 
bank be either in excess or deficiency in that amount, the export or import of gold 
must be borne by the bank seeking to* diminish or increase its stock. 

" Any violation of this regulation after the 8th of December, 1845, to be considered a 
virtualwithdrawal of the bank who departs from this rule. 

" N. B. The foregoing arrangements are to be subject to such alterations and amend- 
ments as may be required and agreed on by the several banks parties thereto, after the 
plan shall be in operation, and its working effect ascertained." 



THE IRISH BANKS. — ADDENDUM. 
{From the London Bankers' Almanac, Diary, and Year Book, for 1851.) 







Paid-up 


Reserved 


Fixed 


No. of 


Name. 


Established. Capital. 


Fund. 


Issue. Branches. 






£ 


£ 


£ 




1. Bank of Ireland, 


1783 


3,000,000 


1,093,300 


3,738,428 


24 


2. Belfast Banking Company, 


1827 


125,000 




281,611 


20 


3. Hibernian Bank, Dublin, . 


1825 


250,000 


68,000 


No Issue 


3 


4. National Bank of Ireland, 


1835 


450,000 


50,105 


761,757 


48 


5. Do. do. Clonmel, 


1836 


.... 


.... 


66,428 




6. Do. do. Carrick-on- 


Suir, 






24,084 




7. Northern Banking Company. 


, Belfast, 1825 


150,000 


49*479 


243,440 


11 


8. Provincial Bank, 


. 1825 


540,000 


110,182 


927,667 


38 


9. Royal Bank of Ireland, . 


1836 


209,175 


45,745 


No issue 


None 


10. Tipperary Joint-Stock Bank, 


1838 


.... 


.... 


« 


8 


11. Ulster Banking Company, , 


1836 


200,000 


.... 


311,079 


14 


General Circulation. 


Dec. 4, 1847. 


Dec. 2, 1848. 


Dec. 1, 1849 


Nov. 2, 1650. 




£ 


£ 


£ 




£ 


1. Bank of England, 


20,161,404 


18,702,000 


18,156,000 


19,787,000 


2. Private Banks, 


3,691,000 


3,703,000 


3,703,000 


3,784,000 


3 Joint-Stock Banks, . 


2,576,000 


2,727,000 


2,703,000 


2.894,000 


4 Irish Banks, . 


2,147,000 


2,117,000 


4,674,000 


4,994,000 


6. Scotch Banks, . 


3,732,000 


3,570,000 


3,500,000 


3,318,000 



386 



Moral and Religious Duties 



fr-ss-row Vm. — THE MORAL AND RELIGIOUS DUTIES 
OF BANKING COMPANIES.* 



*'i implore the blessing of Divine Providence on our united efforts to encourage the industry and in- 
crease the comforts of my people, and to inculcate those Religious and Moral Principles which are the 
surest foundation of our security and happiness." — Speech from the throne, Aug. 9, 1845. 

" Property has its Duties as well as its Rights." — The late Mr. Drummond. 



This is the age of public companies. The principle of association is 
one of the most powerful agents of modern times. Whatever object we 
wish to accomplish, whether political or commercial, literary or religious, 
the first step is to form a society. Those joint-stock associations that 
involve the outlay of capital with a view to profit, are called public com- 
panies ; and these form the subject of our present inquiries. 

Public companies now occupy a distinguished place in our social econo- 
my. We receive our education in schools and colleges founded by public 
companies. We commence active life by opening an account with a 
banking company. We insure our lives and our property with an insur- 
ance company. We avail ourselves of docks, and harbours, and bridges, 
and canals, constructed by public companies. One company paves our 
streets, another supplies us with water, and a third enlightens us with gas. 
At home, numerous luxuries are brought within our reach by different 
companies. And if we wish to travel, there are railway companies, 
and steamboat companies, and navigation companies, ready to whirl us 
to every part of the earth. And when, after all this turmoil, we arrive 
at our journey's end, cemetery companies wait to receive our remains, 
and take charge of our bones. 

The question that now claims our attention is, whether these powerful 
companies ought to be regarded as moral agents ? that is, whether they 
are capable of virtuous and vicious actions, and, like individuals, are re- 
sponsible to a Superior Power, who will reward or punish them according 
to their works. 

In examining this question, we shall propose the following inquiries : — 

First. Ought public companies, like individuals, to be regarded as 
moral agents, and therefore bound to perform moral and religious duties ? 

Second. What are those moral and religious duties which, as moral 
agents, public companies are bound to perform ? 

* This section was printed separately in the beginning of the year 1 846, under the 
title of " The Moral and Eeligious Duties of Public Companies." It was designed 
only " for private distribution among such of the writer's friends as were in a position 
to influence the conduct of public companies." The favorable opinion of it expressed 
by some of those friends, has induced me to publish it as a portion of the present 
work. 

387 



A Treatise on Banking. 

Third. What are those rewards or punishments which may be ex- 
pected to follow the performance or non- performance of those duties ? 

First. We inquire, ought public companies, like individuals, to be 
regarded as moral agents, and therefore bound to perform moral and re- 
ligious duties ? 

We assume, at the commencement of our inquiries, that manki&i, as 
individuals, are moral agents, having had laws laid down for their gov- 
ernment by a Superior Being, to whom they are responsible for their ac- 
tions. They who deny this proposition (if such there be) are not the 
persons for whose perusal these pages are designed ; and therefore we 
will not ask them to accompany us any farther in our inquiries. 

Assuming that mankind are responsible, as individuals, we propose to 
inquire whether public bodies, as such, are subject to the same responsi- 
bility. And here we would suggest the following considerations : — 

1. Public companies are recognized as moral agents by the laws of 
the country in which they are established. 

Public companies have, by law, the same rights as individuals ; their 
property is protected by the same laws as that of individuals. Theft or 
fraud towards them is attended with the same punishment. They can 
sue and be sued in the same courts of justice. The military and naval 
forces protect them from external violence. They have the same com- 
mercial privileges, and can buy and sell and get gain. The improve- 
ments in the arts and sciences benefit them as well as individuals ; and 
whatever new laws are passed by the Legislature confer upon them the 
same benefits as upon individual citizens. Having the same rights, they 
have necessarily the same duties as individuals. Equality of privilege 
implies equality of moral obligation. Property has its duties as well as 
its rights ; and if the property which to-day is in the hands of an indi- 
vidual is transferred to-morrow into the possession of a thousand indi- 
viduals, would it not carry with it the same amount of moral obligation ? 
Would not the possession of the property demand from the company the 
same duties towards their servants, their fellow-citizens, their country, 
and their God, which it previously demanded from the individual ? and 
would they not be equally bound to the exercise of justice, kindness, be- 
nevolence, and patriotism ? The success of public companies is often at 
the expense of individuals. Ought they not, then, to be called upon to 
perform the social duties of the classes they have annihilated ? On these 
principles the legislatures of all countries have imposed on public com- 
panies the same duties as on individuals ; and in case of violations of 
its laws, have rendered them subject to the same penalties. They have 
thus been recognized as moral agents. 

2. Public companies are capable of sustaining many social relations 
which are the foundation of moral duties. 

The social relations of public companies are various. They may be 
buyers or sellers, debtors or creditors ; they may employ others, or be 
employed themselves ; they may be receivers or bestowers of favor ; they 
may be friends or enemies, neighbours or strangers ; they may be wealthy 
or indigent, in prosperity or adversity ; they may be influential or other- 
wise ; they may be plaintiffs or defendants in a court of law, or be the 

3S8 



Moral and Religious Duties. 

accusing or the accused party in a criminal court. Every relationship 
implies a corresponding duty ; and we contend that public companies, in 
any of these relative positions, are bound to perform the same duties 
which the same relations would impose upon individuals. 

If it were necessary to quote Scripture, to show that relation implies cor- 
responding duties, we might multiply quotations, — a few will suffice : — 

" Have we not all one father ? Hath not one God created us ? Why do we deal 
treacherously every man against his brother? " Mai. ii. 10. 

" A son honoreth his father, and a servant his master : if, then, I be a father, where 
is mine honor "? And if I be a master, where is my fear 1 " Mai. i. 6. 

" It is not for kings to drink wine, nor princes strong drink." Prov. xxxi. 4. 

" It was not an enemy that reproached me ; then I could have borne it : but it was 
thou, a man mine equal, my guide, and my acquaintance." Ps. lv. 12, 13. 

" Thou shalt neither vex a stranger, nor oppress him : for ye were strangers in the 
land of Egypt." Exod. xxii. 21. 

" Am I a Jew ? Thine own nation have delivered thee unto me." John xviii. 35. 

" Ye call me Master and Lord : and ye say well ; for so I am. If I, then, your Lord 
and Master, have washed your feet ; ye also ought to wash one another's feet." John 
xiii. 13, 14. 

" There was a certain creditor which had two debtors : the one owed five hundred 
pence, and the other fifty. And when they had nothing to pay, he frankly forgave 
■them both. Tell me, therefore, which of them will love him most." Luke vii. 41, 42 

" Shouldst not thou also have had compassion on thy fellow-servant, even as I had 
pity on thee 1 " Matt, xviii. 33. 

" Which now of these three, thinkest thou, was neighbour to him that fell among 
thieves ? And he said, He that showed mercy on him." Luke x. 36. 

" Love as brethren" 1 Pet. iii. 8. 

" Sittest thou to judge me after the law, and commandest me to be smitten contran 
to the law 1 " Acts xxiii. 3. 

" What hast thou that thou didst not receive ? now if thou didst receive it, why dos . 
thou glory, as if thou hadst not received it ? " 1 Cor. iv. 7. 

" If any man see thee which hast knowledge sit at meat in an idol's temple, shall not 
the conscience of him which is weak be emboldened to eat those things which are 
offered to idols ; and through thy knowledge shall the weak brother perish ? " 1 Cor. 
viii. 10, 11. 

" Art thou a Master of Israel., and knowest not these things ? " John iii. 10. 

" Thou that teachest another, teachest not thou thyself ? " Rom. ii. 21. 

u If thou, being a Jew, livest after the manner of the Gentiles, and not as do the 
Jews, why compellest thou the Gentiles to live as do the Jews 1 " Gal. ii. 14. 

All these quotations refer to certain relations, and intimate certain 
duties. They serve to prove the general principle, that every relation 
implies a corresponding duty ; and hence we infer, that so far as public 
companies are capable of sustaining the same relations, they are bound 
to the performance of the same duties. 

3. Public companies sustain those relations to the Deity which imply 
an obligation to the performance of moral and religious duties. 

We have considered public companies in their relation to the com- 
munity in which they are established ; in relations they may sustain to in- 
dividual members of that or any other community ; we shall now consider 
them in their relation to the Deity. This forms the chief ground of 
moral and religious duty. Their relation to the Deity is a relation of 
dependence. It will not be denied that for every talent necessary to 
conduct their operations, and for all the success which may attend their 
exertions, public bodies are as dependent as individuals upon the kindness 
of Providence. Every good and every perfect gift cometh down from 

389 



A Treatise on Banking. 

tne Father of Light. (James i. 17.) Their relation to the Deity is also 
a relation of obligation. They have received favors; as recipients of 
favors it is their duty to be grateful, and this duty is the more obligatory 
in proportion to the greatness and condescension of their Benefactor. 
Their relation to the Deity is also a relation of responsibility. They 
possess wealth, influence, power. Providence never bestows these talents, 
without holding the parties on whom they are bestowed responsible for 
their proper use. Those who duly improve the talents with which Provi- 
dence has intrusted them, will have those talents increased, and be re- 
warded by the Divine approbation. Those who neglect to use these tal- 
ents, are held responsible for their neglect, and will be punished for their 
inactivity. (Luke xix. 13-26.) We have no reason to suppose that 
public companies are excluded from the general rules of the Divine ad- 
ministration. As far, then, as they are endowed with the same talents 
as individuals, so far must they be considered as subject to the same 
responsibilities. From these considerations we infer, that public com- 
panies, like individuals, are moral agents. 

4. Public companies are analogous to other collective bodies who are 
acknowledged to be moral agents. 

It will not be denied that a nation may declare an unjust war, may 
carry it on in a cruel manner, may treat a conquered nation with oppres- 
sion, or may conduct a treaty of peace with duplicity and fraud. Nor 
will it be denied, that a nation may become immoral by the extinction of 
moral feeling in its rulers, and throughout the population. 

If, then, nations are capable of performing virtuous or vicious actions, 
then are they moral agents ; to be rewarded or punished according to 
their actions. The doctrine of national responsibility is thus stated by 
Moses : — 

" If ye will walk in my statutes, and keep my commandments, and do them ; then I 
will give you rain in due season, and the land shall yield her increase, and the trees of 
the field shall yield their fruits, and your threshing shall reach unto the vintage, and 
the vintage shall reach unto the sowing time : and ye shall eat your bread to the full, 
and dwell in your land safely. And I will give peace in the land, and ye shall lie 
down, and none shall make you afraid; and I will rid evil beasts out of the land, 
neither shall the sword go through your land. And ye shall chase your enemies, and 
they shall fall before you by the sword. And I will set my tabernacle among you, and 
will be your God, and ye shall be my people." Lev. xxvi. 3-12. 

" But if ye will not hearken unto me, and will not do all these commandments, I 
also will do this unto you ; I will appoint over you terror, consumption, and the burn- 
ing ague, that shall consume the eyes, and cause sorrow of heart : and ye shall sow 
your seed in vain, for your enemies shall eat it ; and I will set my face against you, 
and ye shall be slain before your enemies ; they that hate you shall reign over you ; 
and ye shall flee when none pursueth you. And if ye will not yet for all this hearken 
unto me, then I will punish you seven times more for your sins." Lev. xxvi. 14 - 18 ; 
Dent xxviii. 1-15; Neh. ix.; Jer. v. 23-28: vii. 5-7; xviii. 7-10; xxii. 2-9; 
Ezek. xxii.; Matt, xxiii. 34-38. 

The Jewish history presents the most remarkable instance on record of 
a nation being rewarded for their righteousness and punished for their dis- 
obedience. The nations they conquered were subjected to the same dis- 
cipline, and it is expressly stated that those nations were punished for 
their sins. And those who have studied the philosophy of history will 

390 



Moral and Religious Duties. 

have observed, that nations have risen and fallen m political greatness as 
they have risen and fallen in their observance of the principles of mo- 
rality and religion. 

On this subject we might quote the language of historians, of moralists, 
of philosophers, and of theologians ; but we prefer citing the language of 
a monarch, especially as that monarch is our own. Surrounded by her 
nobles, her senators, her councillors, her judges, her generals, and her 
admirals, — Queen Victoria has declared from the throne, " Religious 

AND MORAL PRINCIPLES ARE THE SUREST FOUNDATION OF OUR SECURITY 
AND HAPPINESS." 

As, then, large bodies of men, like nations, are rewarded or punished 
in their collective capacity, for their virtuous or vicious actions, it would 
seem to follow, that smaller bodies of men, like public companies, may 
be subjected to the same moral discipline. 

A public company, like a nation, is composed of a number of individ- 
uals who have a government for the regulation of their affairs, and whose 
acts are considered as the acts of the whole body. It is true that a pub- 
lic company is composed of a smaller number of persons than a nation, 
but that cannot affect the moral character of its actions. It is also true, 
that while a nation must always act through its government, a public 
company may, and often does, at the general meeting of its shareholders, 
act independently of its government ; but neither can this alter its moral 
agency ; for whether the form of government be aristocratical or democrat- 
ical, the duties of a nation, or of a public company, remain the same.* 

In opposition to this doctrine, it may be contended that, to render public 
bodies of men responsible in their collective capacity, would be destruc- 
tive of personal or individual responsibility. But this is not the case. A 
nation may be punished for its national crimes, and yet the individual 
who may have caused these crimes may sustain an individual punishment. 
Thus Jeroboam, Ahab, and other kings of Israel, were individually pun- 
ished, while, at the same time, the nation was also punished in its collec- 
tive capacity. So a public company may be punished or rewarded for its 
actions, while, at the same time, any individual who caused these actions 
may also be personally rewarded or punished. It may, too, be objected, 
that if a public company is to be punished as such for its acts, then all the 
partners would share in the punishment, though many of them may have 
been quite innocent of the crime. To this we answer, that the same ob- 
jection would apply to the doctrine of national responsibility.f It is not 

* In this discussion we consider public companies as corporations, and inquire what 
duties they, as corporations, owe to other parties. The several duties of directors, 
officers, and shareholders, do not lie within the range of our inquiries. 

t The logical reader need not be reminded, that in arguments from analogy it is a 
sufficient answer to an objection to show that the objection applies with equal force to 
the doctrine from which the analogy is drawn. Thus, in the text, the moral responsi- 
bility of nations is assumed as admitted by all parties, and therefore requiring no fur- 
ther proof. From the resemblance or analogy between the two cases, we infer the 
moral responsibility of public companies. It is therefore a sufficient answer to any 
objection against the latter doctrine, to show that it will equally apply to the former. 
Indeed, the more numerous the objections, if they will apply equally in both cases, the 
more the argument is strengthened ; as they are confirmatory of the soundness of the 
analogy. 

2 A 391 



A Treatise on Banking. 

possible in the case of a large body of men for every individual to take 
part in its actions. The act of the authorized government, or of the 
majority of the members, must be regarded as the act of the whole com- 
munity, and every individual must share in the prosperity or adversity re- 
sulting from such acts. 

It may further be observed, that it is not inconsistent with the principles 
of the Divine government for persons to suffer for the wickedness, or to 
be rewarded for the righteousness, of those with whom they are socially 
connected : — 

" I the Lord thy God am a jealous God, visiting the iniquity of the fathers upon the 
children unto the third and fourth generation of them that hate me ; and showing 
mercy unto thousands of them that love me, and keep my commandments." Exod. 
xx. 5, 6. 

In our own day, we witness numerous instances of children possessing 
wealth, mental cultivation, and influence in society through the virtues of 
their parents. And also, not a few cases of children being reduced to 
poverty and degradation through the vices of their parents. Children 
suffer through the conduct of their parents, and parents through the con- 
duct of their children ; masters by their servants, and servants by their 
masters. In fact, it is not possible for any individual, however obscure, to 
be either virtuous or vicious without in some way promoting the happiness 
or misery of some person besides himself. It is, therefore, no valid ob- 
jection to the doctrine of the moral responsibility of public companies 
that it renders all the partners answerable for the conduct of the majority. 
In fact, human governments act upon this principle. If any company 
Mere to incur penalties to the state, those penalties would be enforced 
against the whole property of the company, though many individual part- 
ners might be quite unconscious of the offence by which those penalties 
were incurred. 

We might further confirm our doctrine by tracing the analogy between 
public companies and families. 

" Pour out Thy fury upon the families that call not on Thy name." Jer. x. 25. 

" In that day I will perform against Eli all things I have spoken concerning his 
house; for I have told him that I will judge his house for ever, for the iniquity which 
he knoweth ; because his sons made themselves vile and he restrained them not. And 
therefore I have sworn unto the house of Eli, that the iniquity of Eli's house shall not 
be purged with sacrifice nor offering for ever." 1 Sam. iii. 12- 14. 

" And the ark of the Lord continued in the house of Obed-edom the Gittite three 
months : and the Lord blessed Obed-edom, and all his household ; and it was told 
King David, saying, The Lord hath blessed the house of Obed-edom and all that per- 
taineth unto him, because of the ark of God." 2 Sam. vi. 11, 12. 

" And Jeremiah said unto the house of the Rechabites, Thus saith the Lord of Hosts, 
the God of Israel ; Because ye have obeyed the commandment of Jonadab your fa- 
ther, and kept all his precepts, and done according to all that he hath commanded 
you : therefore thus saith the Lord of Hosts, the God of Israel ; Jonadab, the son of 
Rechab, shall not want a man to stand before me for ever." Jer. xxxv. 18, 19. 

We might adduce other declarations respecting the families of David 
Jeroboam, Ahab, and others. It may be objected, that in these cases th< 
families were rewarded or punished for the acts of the head of the fami- 
ly, and not for their own. It appears, however, that the families con- 
curred in the actions of their head. When this was not the case, the 

392 



Moral and Religious Duties, 

exception is mentioned (1 Kings xiv. 13), and in others it is expressly 
stated that the reward or punishment of the family would in some degree 
depend upon their own conduct (Ps. lxxxix. 30-83). 

The doctrine of collective responsibility in the present world might be 
still further confirmed by references to the punishments inflicted on partic- 
ular cities. We will refer only to Nineveh and Jerusalem. In the former 
case an act of general humiliation obtained a remission, or at least a 
postponement, of the punishment due to their wickedness ; and in the 
latter, their sin in rejecting the Gospel was visited with a signal punish- 
ment. 

" The word of the Lord came unto Jonah, saying, Arise, go to Nineveh, that great 

city, and cry against it ; for their wickedness is come up before me And he cried 

and said, Yet forty days, and Nineveh shall be overthrown. So the people of Nine- 
veh believed God, and proclaimed a fast, and put on sackcloth, from the greatest of 
them even to the least of them. For word came unto the king of Nineveh, and he 
arose from his throne, and he laid his robe from him, and covered him with sackcloth, 
and sat in ashes. And he caused it to be proclaimed and published through Nineveh 
by the decree of the king and his nobles, saying, Let neither man nor beast, herd nor 
flock, taste any thing : let them not feed, nor drink water : but let man and beast be 
covered with sackcloth, and cry mightly unto God : yea, let them turn every one from 
his evil way, and from the violence that is in their hands. Who can tell if God will 
tarn and repent, and turn away from his fierce anger, that we perish not ? And God 
saw their works, that they turned from their evil way ; and God repented of the evil 
that he had said that he would do unto them ; and he did it not." Jonah i. 2 ; Hi. 4-10. 

" And when he was come near, he beheld the city, and wept over it, saying, If thou 
hadst known, even thou, at least in this thy day, the things which belong unto thy 
peace ! but now they are hid from thine eyes. For the days shall come upon thee 
that thine enemies shall cut a trench about thee, and compass thee round, and keep 
thee in on every side, and shall lay thee even with the ground, and thy children within 
thee ; and they shall not leave in thee one stone upon another ; because thou knewest 
not the time of thy visitation." Luke xix. 41 -44 ; Matt, xxiii. 37, 38. 

Before quitting this branch of our inquiry, we may notice one practical 
application of the doctrine of collective responsibility. It is, that every 
individual member of a public body, whether a nation, a family, or a com- 
pany, should induce that body to walk in the path of uprightness. For 
should they not do so, he will have to bear a portion of the collective 
punishment, though he may not personally have taken any active part in 
the crime (Matt. xxiv. 19). 

Secondly. — Having shown that public companies are moral agents, 
and consequently bound to the performances of certain duties, we shall 
now inquire what are those duties which, as moral agents, public compa- 
nies are bound to perform. 

We shall not attempt to enumerate all these duties, but merely make a 
selection of the most important, and these we shall classify as, I. The 
duties of patriotism ; II. The duties of social relationship ; III. The du- 
ties of religion ; IV. The duties of benevolence. 

I. The duties of patriotism. 

By the duties of patriotism we mean those duties which a public com- 
pany owes to the state. Patriotism is the love of one's country, or, more 
properly, the love of one's nation. Public spirit is a willingness to sacri- 
fice a portion of one's time, property, or comfort, to promote the happiness 

393 



A Treatise on Banking. 

of one's fellow-citizens. These are duties obligatory on every citizen 
(Ps. cxxxvii. ; Neh. i. 4 ; ii. 3 ; Rom. ix. 3), and consequently binding on 
every collective body of citizens. We repudiate the doctrine that a pub- 
lic company has only to attend to the interest of its proprietors, regardless 
of the effect its measures may have on the public weal. This would be 
a violation of duty on the part of an individual, and still more so on the 
part of a public company. For they have received from the Legislature 
special privileges to enable them to carry on their operations. These 
privileges have been granted with a view to the promotion of the public 
interest. If, then, these privileges are employed to the injury of the 
public, then is there not merely a violation of the duty of citizenship, 
but a further violation of duty by the misapplication of privileges con- 
ferred by the Legislature. 

" Unto whomsoever much is given, of him shall much be required ; and to whom 
men have committed much, of him they will ask the more." Luke xii. 48. 

In proportion as the Legislature has conferred privileges, in such pro- 
portion it may be expected that they who have received these privileges 
will be active in promoting the public interest. The possession of privi- 
leges implies an increased obligation to perform certain duties. 

The first of these duties is to obey the laws. A public company should 
abstain from smuggling and all other illicit proceedings, should make cor- 
rect returns to government, and pay its fair proportion of the property- 
tax and of all other duties. 

" Render unto Caesar the things which are Ceesar's. Render to all their dues ; 
tribute, to whom tribute is due ; custom, to whom custom ; fear, to whom fear ; honor, 
to whom honor." Rom. xiii. 7. 

Another duty is to enforce the laws upon others. Individuals some- 
times abstain from prosecuting frauds upon themselves, from a misap- 
plied feeling of compassion, an unwillingness to incur odium, or the fear 
of expense ; but none of these feelings are sufficient to justify a public 
company in abstaining from this duty. Such a course is injurious to the 
public, by holding out inducements to the commission of similar crimes. 

" Because sentence against an evil work is not executed speedily, therefore the 
heart of the sons of men is fully set in them to do evil." Eccles. viii. 11. 

It is also the duty of public companies to support the cause of order 
and of due submission to constituted authorities, the rights of property, 
the supremacy of the law, the impartial administration of public justice, 
and to honor the constitutional government of the country, by whatever 
party it may be administered. 

" Put them in mind to be subject to principalities and powers, to obey magistrates, 
to be ready to every good work, to speak evil of no man, to be no brawlers, but gentle, 
showing all meekness unto all men." Tit. iii. 1. 2. 

Another duty is to conduct the affairs of the company on such a liberal, 
yet prudent scale of expense, as shall afford encouragement to the indus- 
try, trade, and fine arts of the country. Solomon says, — 

" Prepare thy work without, and make it fit for thyself in the field, and afterwards 
build thy house." Pro v. xxiv. 27. 

394 



Moral and Religious Duties. 

Which means, if we understand it rightly, " Get your money before you 
spend it ; but having got it, live in a scale of expense corresponding to 
your means ; afterwards build thy house." Individuals may be justified 
in living much within their means, in order to provide for old age, or for 
the proper settlement of their children ; but public companies cannot have 
such motives for conducting their establishments with an unsuitable econ- 
omy. But, above all, it is the duty of a public company to maintain, in 
all its transactions, a high-toned morality. 

:: Righteousness exalteth a nation." Prov. xiv. 34. 

A departure from moral rectitude is altogether inexcusable in a public 
company. As all their actions are presumed to be the result of previous 
deliberations, they cannot plead in excuse, as individuals do, the power of 
passion, the impulse of the moment, or the force of habit. In proportion 
to the weakness or the absence of temptation, in such proportion would 
their conduct be the more criminal (Prov. vi. 30) ; while their wealth and 
influence would render their example more extensively injurious to the 
public morality. If parties of high station in society depart from the 
strict rule of duty, those of inferior station will deviate still more widely • 

" If a ruler hearken to lies, all his servants are wicked." Prov. xxix. 12. 

II. The duties of social relationship. 

The social duties of public companies are the same as those of individ- 
uals who maintain the same relations. These duties are clearly stated in 
the Holy Scriptures. The Bible is a code of laws, — not a book of ad- 
judged cases. It lays down the principles of human actions, but leaves 
the application of these principles to the dictates of reason and of con- 
science. We might read through the Bible, and not find a chapter headed 
" The Duties of Public Companies." In this case we endeavour to ascer- 
tain, in the first place, what are the duties of individuals. Then we take 
the principles of these duties and apply them to the acts of public com- 
panies. The principles of moral duty undergo no change ; but the cir- 
cumstances of human society are perpetually changing, and hence the 
correct application of these principles is sometimes a matter of difficulty. 
We shall here, in the first place, state in the language of Scripture the 
principles of some of our social relationships, and then make a practical 
application of them. There are, doubtless, other principles we have not 
mentioned, and those we have mentioned may be applied, and are applied, 
in practice, to many other cases besides those specified. 

1. These are the things that ye shall do : " Speak ye every man the 
truth to his neighbour, execute the judgment of peace and truth in 
your gates, and let none of you imagine evil in your hearts against his 
neighbour, and love no false oath ; for all these are things that I hate, 
saith the Lord." Zech. viii. 16, 17. 

Insert no erroneous statements in your prospectus ; make no incorrect 
calculations in order to deceive a parliamentary committee ; circulate no 
unfounded rumors for the purpose of affecting the market value of your 
shares ; and let your annual reports contam nothing but the truth 

395 



A Treatise on Banking. 

" Thou shalt not raise a false report ; put not thy hand with the wicked, to be an 
unrighteous witness." Exod. xxiii. 1. 

" The getting of treasures by a lying tongue is a vanity tossed to and fro of them 
that seek death." Prov. xxi. 6. 

2. Ye shall not steal, neither deal falsely, neither lie one to an- 
other." Lev. xix. 11. 

Be honest and upright in all your dealings, let your charges be fair and 
just, and be sincere and straightforward in all your pecuniary transac- 
tions. 

" Thou shalt not have in thy bag divers weights, a great and a small. Thou shalt 
not have in thine house divers measures, a great and a small. But thou shalt have a 
perfect and just weight, a perfect and just measure shalt thou have ; that thy days 
mav be lengthened in the land which the Lord thy God giveth thee." Deut. xxv. 
13-15. 

" What man is he that desireth life, and loveth many days, that he may see good ? 
Keep thy tongue from evil, and thy lips from speaking guile. Depart from evil and 
do good; seek peace, and pursue it." Ps. xxxiv. 12-14; 1 Pet. hi. 10, 11. 

All promises or engagements must be faithfully kept, even when the 
performance is injurious to the interests of the company. 

" That which is gone out of thy lips, thou shalt keep and perform." Deut. xxiii. 23. 
" He sweareth to his own hurt and changeth not." Ps. xv. 4. 

The Israelites were punished with three years of famine, because one 
of their kings attempted to violate a treaty into which they had been 
drawn by false representations. Josh. iv. 25 ; 2 Sam. xxi. 1. 

3. "If iniquity be in thy hand, put it far away, and let not wickedness dwell in thy tab- 
e~nacles." Job. xi. 14. 

' If any of the servants of a public company are found wanting in integ- 
rity, they should immediately be dismissed, and on no account be rein- 
stated. And if any of their professional agents act dishonestly, even to 
benefit the company, they should not be employed again. 

" He that walketh in a perfect way, he shall serve me. He that worketh deceit 
shall not dwell within my house ; he that telleth lies shall not tarry in my sight." 
Ps. ci. 6, 7. 

Banking companies should not take the accounts of disreputable par- 
ties ; and a fraudulent bankrupt should not be allowed to re-open his ac- 
count, even should he plead that, although he had cheated all his other 
creditors, he had not cheated his banker. 

" Shouldst thou lielp the ungodly, and love them that hate the Lord, therefore is 
wrath upon thee from before the Lord." 2 Chron. xix. 2. 

" Depart from me, ye evil doers, for I will keep the commandments of my God." 
Ps. cxix. 115. 

In making advances, banking companies should consider the mora] 
character of the party with whom they deal, as an element of their secu- 
rity ; and should more readily afford accommodation to parties having 
such a character than to those who are without it. " The wicked borrow- 
eth and payeth not again." Ps. xxxvii. 21. 

Public companies should do nothing that would be considered dishonor- 
able and disreputable in an individual member of the company. The 

396 



Moral and Religious Duties. 

moral character of an action cannot be changed by the number of persons 
who may commit it. 

" Though hand join in hand, the wicked shall not go unpunished." Prov. xi. 21. 
" Fire shall consume the tabernacles of bribery." Job xv. 34. 
" Abstain from every appearance of evil." 1 Thess. v. 22. 

Public companies should not listen to plans and schemes proposed for 
their adoption by parties known to be deficient in moral principle ; nor 
should they hire agents to do what they would not do themselves. 

"Evil communications corrupt good manners. 1 Cor. xv. 33. — Lord, who shall 
abide in thy tabernacle ? who shall dwell in thy holy hill ? He that walketh uprightly, 
and worketh righteousness, and speaketh the truth in his heart. He that backbiteth not 
with his tongue, nor doeth evil to his neighbour, nor taketh up a reproach against his 
neighbour. In whose eyes a vile person is contemned ; but who honoreth them that 
fear the Lord." Ps. xv. 1 -4. 

4. "Speak not evil one of another." James iv. 11. 

Public companies should not speak unjustly or unkind of each othei. 
" Love as brethren." 1 Pet. iii. 8. But this does not prohibit their speak- 
ing the truth of each other on proper occasions, even when the truth 
may be unpleasant or injurious to the party about whom it is spoken. It 
may sometimes become the duty of a respectable and honorable compa- 
ny to expose the fraudulent and deceitful practices of other companies : 
we are not forbidden to bear witness — but only false witness — against 
our neighbour. " By mercy and truth iniquity is purged." Prov. xvi. 6. 

5. " Fear thou the Lord and the King, and meddle not with them that 
are given to change." Prov. xxiv. 21. 

A public company should not meddle with politics : nor let the influ- 
ence of the company be employed to produce any political change. It 
should not too frequently change the principles and maxims of its own gov- 
ernment. Fixed rules and regulations are to a public company what 
habits are to an individual : they insure a uniformity of conduct, and are 
equally essential to success. A steady adherence to fixed principles is 
the surest road to prosperity. A restless discontent with moderate profits, 
and an attempt to get suddenly rich, by reckless speculation, has been the 
ruin of many companies as well as individuals. Prov. xxviii. 20 -22. 
Nor should they change too often the terms on which they transact busi- 
ness with the public, as that occasions much inconvenience. Nor change 
too frequently the rate of their dividend, as that may lead to gambling in 
their shares. Better pay always the same rate of dividend, and let the 
surplus profit of one year be placed to a reserved fund to supply the defi- 
ciences of future years. 

11 A double-minded man is unstable in all his ways." James i. 8. 

" Unstable as water, thou shalt not excel." Gen. xlix. 4. 

" Trust in the Lord with all thine heart, and lean not unto thine own understand- 
ing. Be not wise in thine own eyes. Pear the Lord, and depart from evil." Prov 
iii. 5-7. 

6. " Thou shalt not avenge, nor bear any grudge against the children 
of thy people, but thou shalt love thy neighbour as thyself" Lev. xix. 18. 

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A Treatise on Banking. 

In cases of dispute or litigation, do not let your judgment be blinded by 
self-interest ; but judge impartially, and do unto others as, in a similar 
case, you would wish to be done unto yourself. Use no means of hostil- 
ity, or annoyance, or rivalry towards other companies which you would 
condemn as unjust or unfair were they used against yourself. Recom- 
mend to others no schemes, or speculations, or investments, in which you 
would not be willing to take any share yourself. Give no false testimonials 
of character, so as to induce others to employ parties whom you would 
not employ yourself. If you have received favors from other companies, 
or from individuals, do not let your thankfulness evaporate in mere votes 
of thanks, or acclamations of applause, but render to others the same tok- 
ens of gratitude which, under the same circumstances, you would expect 
to receive yourself. " All things whatsoever ye would that men should 
do unto you, do ye even so to them, for this is the law and the prophets." 
Matt. vii. 12. 

7. " If thine enemy be hungry, give him bread to eat ; and if he be 
thirsty give him water to drink ; for thou shalt heap coals of fire upon his 
head, and the Lord will reward thee." Prov. xxv. 21, 22. 

If there be a run on a banking company, the rival banking companies 
should render assistance, and not suffer a solvent bank to stop payment for 
want of temporary support. All hostile companies should render assist- 
ance to each other on the occurrence of calamities, to which all are liable. 

" Eejoice not when thine enemy falleth, and let not thine heart be glad when he 
stumbleth, lest the Lord see it, and it displease him, and he turn away his wrath from 
him." Prov. xxiv. 17, 18. It is quite right to contend against our enemies, and to 
rejoice when we are successful. " I will extol thee, Lord, for thou hast lifted me 
up, and hast not made my foes to rejoice over me." Ps. xxx. 1. 

But it is not right to rejoice when the wrath of Providence permits 
them to fall into calamity, or to stumble into acts of vice or folly. A 
railway company should not rejoice when accidents occur on a rival line ; 
nor a banking company when a rival bank has made a large amount of 
bad debts ; nor an insurance society when extensive fires or numerous 
deaths have absorbed the funds of a rival society ; nor a mining associa- 
tion when accidents have damaged the mines belonging to a rival asso- 
ciation. 

" He that is glad at calamities shall not be unpunished." Prov. xvii. 5. 

If your enemies treat you in a different manner, you should not imitate their exam- 
ple, but forgive them. " Recompense no man evil for evil." Rom. xii. 17. 

"Let all bitterness, and wrath, and anger, and clamor, and evil speaking, be put 
away from you, with all malice ; and be ye kind one to another, tender-hearted, for- 
giving one another, even as God for Christ's sake hath forgiven you." Eph. iv. 31, 32. 

8. " If any man will sue thee at the law, and take away thy coat, let 
him have thy cloak also." Matt. v. 40. 

(1.) If he have an equal claim to the coat and the cloak, and the law 
decides that he is justly entitled to the coat, give him the cloak also, 
though he do not claim it. Do what is just, though the law may not 
require it, and never have recourse to a legal quibble in order to baffle a 
just demand. 

398 



Moral and Religious Duties. 

" The thoughts of the righteous are right, but the counsels of the wicked are de- 
ceit." Prov. xii. 5. 

(2.) Do not go to law without mature deliberation. 

" Go not forth hastily to strive, lest thou know not what to do in the end thereof, 
when thy neighbour hath put thee to shame." Prov. xxv. 8. 

(3.) Nor yet about matters of trifling importance which are no practi- 
cal injury. 

" Strive not with a man without cause, if he have done thee no harm." Prov. iii. 30. 
(4.) Nor yet from vindictive motives. 

" Say not thou, I will recompense evil, but wait on the Lord, and he shall save 
thee." Prov. xx. 22. 

(5.) Never go to law about matters in which you have no direct in- 
terest. 

" He that passeth by, and meddleth with strife belonging not to him, is like one that 
taketh a dog by the ears." Prov. xxvi. 17. 

(6.) Do not go to law with a man merely because he is poor, and 
therefore unable to contend against your large capital ; nor trespass on 
any man's rights because he cannot afford the expense of obtaining legal 
redress. 

" Rob not the poor because he is poor, neither oppress the afflicted in the gate, for 
the Lord will plead their cause, and spoil the soul of those that spoiled them." Prov. 
xxii. 22, 23. 

(7.) It will be wise and honorable to bring the suit to a close as soon 
as you can. 

" It is an honor for a man to cease from strife, but every fool will be meddling." 
Prov. xx. 3. 

(8.) If you reject a just and honorable compromise, you may lose the 
action, and you will then not only have to pay the expense of the suit, 
but you will have put yourself in a disreputable position. 

"Agree with thine adversary quickly, while thou art in the way with him, lest at 
any time the adversary deliver thee to the judge, and the judge deliver thee to the offi- 
cer, and thou be cast into prison. Thou shalt by no means come out thence till thou 
hast paid the uttermost farthing." Matt. vi. 25, 26. 

(9.) Do not indulge a fondness for litigation. 

" He loveth transgression that loveth strife, and he that exalteth his gate seeketh 
destruction." Prov. xvii. 19. 

(10.) If you have to sue any party criminally, enforce the law with 
kindness and forbearance. 

" Execute true judgment, and show mercy and compassion, every one to his broth- 
er." Zech. vii. 9. 

It is quite possible to execute judgment and show mercy at the same 
time. 

(11.) If called upon to arbitrate between contending parties, act justly 
and impartially. 

" Thou shalt not respect the person of the poor, nor honor the person of the mighty 1 
but in righteousness shalt thou judge thy neighbour." Lev. xix. 15. vl Thou shalt not 

399 



A Treatise on Banking. 

wrest judgment : thou shalt not respect persons : neither take a gift ; for a gift doth 
blind the eyes of the wise, and pervert the words of the righteous.'' Deut. xvi. 19. 

(12.) Public companies should employ none but honorable men to 
plead any cause in which they may be engaged. Advocates who are 
noted for legal quibbling, attacking private character, or browbeating wit- 
nesses, should not be engaged ; and, more especially, the standing coun- 
sel of a public company should be a man of high moral and religious 
principle. 

" What hast thou to do to declare my statutes 1 Thou givest thy mouth to evil, and 
thy tongue frameth deceit. Ps. 1.16-19. — They speak vanity every one with his 
neighbour : with flattering lips and with a double heart do they speak. The Lord shall 
cut off all flattering lips, and the tongue that speaketh proud things : who have said, 
With our tongue will we prevail ; our lips are our own : who is Lord over us ? Ps. 
xii. 2-4. — There is that speaketh like the piercings of a sword : but the tongue of 
the wise is health. The lip of truth shall be established for ever : but a lying tongue 
is but for a moment. Deceit is in the heart of them that imagine evil : but to the 
counsellors of peace is joy." Prov. xii. 18-20. 

9. " Be ye all of one mind, having compassion one of another ; love as 
brethren ; be pitiful, be courteous" 1 Pet. iii. 8. 

Be of one mind. — Public companies should entertain a good feeling 
towards each other, and endeavour to promote each other's interest. On 
proper occasions, they ought to unite their influence for the protection of 
their mutual rights. 

Be courteous. — All the servants of the company who come into com- 
munication with the public should be instructed to behave with the utmost 
courtesy ; and if they do so, they are entitled to courtesy in return. No 
shareholder should address a servant of the company as if he were his 
own individual servant ; nor should he, in his transactions with the com- 
pany, expect any undue attention or preference on account of his being a 
shareholder. When a company has occasion, in its annual report or pub- 
lic documents, to refer to the proceedings of other companies, it should 
always be done in the language of courtesy. 

Be pitiful {full of pity). — In some cases, life policies become forfeit- 
ed through the inability of the parties to pay the premiums, and sometimes 
by the party meeting his death in a way that deprives his relations of all 
claim on the company. In cases like these, insurance companies should 
take all the circumstances into consideration, and be pitiful. When an 
honest tradesman fails, and his creditors agree to take a composition, the 
banking company should not refuse to accept the terms proposed, but 
should be pitiful. When the servant of a company has inadvertently 
committed an error, not involving any moral delinquency, let him not be 
too hastily dismissed, and thus placed for life in a lower condition, but be 
pitiful. When servants of the company, from sickness or old age, have 
become less effective than formerly, let arrangements be made for render- 
ing their duties proportionate to their diminished strength. Recollect they 
were once young and healthy, and you had then the benefit of their ser- 
vices, — do not treat them harshly now. Be pitiful. 

10. " Use hospitality one to another, without grudging." 1 Pet. iv. 9. 

400 



Moral and Religious Duties. 

It is proper that public companies, on particular occasions, such, for ex- 
ample, as the opening of a new line by a railway company, should enter- 
tain their friends and others connected with the company. Also, that the 
companies should use hospitality " one towards another." Social inter- 
course tends to promote friendly feelings ; and a friendly feeling between 
the principal officers and members of different companies tends to pro- 
mote a friendly feeling between the companies themselves. It is also a 
good practice to give an annual dinner to all the servants of the company. 
The words " without grudging " may suggest that when the company can 
afford it, these entertainments should be given in a rather handsome style, 
without a too strict regard to economy. On these festive occasions, the 
humbler servants and others connected with the company should not be 
forgotten. 

" When thou makest a feast, call the poor, the maimed, the lame, the blind. And 
thou shalt be blessed : for they cannot recompense thee ; for thou shalt be recom- 
pensed at the resurrection of the just." Luke xiv. 13, 14. 

11. "Thou shalt not oppress a stranger, for ye know the heart of a 
stranger, seeing ye were strangers in the land of Egypt." Exod. xxiii. 9. 

The principle of this suggestion is, that we ought to have compassion 
for all those who are in the same difficulties in which we formerly were 
ourselves. Those whom Providence has raised to a higher station than 
they or their fathers occupied, should entertain kindly feelings towards 
those who belong to the class from whence they have sprung. The same 
rule applies to public companies. Those which have overcome the diffi- 
culties of their formation, and become prosperous, should not employ any 
vexatious or oppressive means of preventing the growth of similar compa- 
nies. Knowing the anxieties they experienced from the difficulties they 
had to encounter, they should not inflict similar anxieties upon others. 
Moses often enforces the duty of kindness towards servants and strangers, 
by reminding the Israelites that they had been strangers and bondsmen in 
the land of Egypt. In questions of morals, it is generally a safe guide 
to a correct judgment, to put ourselves in the position of others, and to 
inquire what then would be our own feelings, and what kind of conduct 
we should wish, under such circumstances, to be adopted towards our- 
selves. In the decision of such cases, it usually appears that the cultiva- 
tion of the moral feelings has improved the intellectual faculties. A 
sound heart is less likely to go astray than a clever head. 

" The entrance of thy words giveth light : it giveth understanding unto the simple. 5 * 
Ps cxix. 130. 

12. "Masters, give unto your servants that which is just and equal, 
knowing that ye also have a Master in heaven." Col. iv. 1. 

Be just in your appointments, and select those who are the most wor- 
thy and the best qualified for the duties they will have to discharge. Bs 
just in the amount of your remuneration ; recollect that many of the ser- 
vants of public companies have greater trusts and heavier responsibilities 
than the servants of individuals ; and in this case, it is just and equal 
that they be rewarded accordingly. Be just in your promotions, and 
let not merit be supplanted by patronage or favoritism. Be just in the 

401 



A Treatise on Banking. 

quantity of labor you exact. Appoint a sufficient number of servants to 
do the work easily. Do not compel them to keep late hours ; nor refuse 
reasonable holidays, for the purposes of health and recreation. Be just 
in your pensions, and let your aged and worn-out servants be treated 
with respect and liberality. Be just in your reproofs. " Forbearing 
threatening." Eph. vi. 9. Let not your censures nor your punishments 
be more than proportionate to the offence ; and be as ready at all times to 
acknowledge the merits of your servants as to notice their defects. 

All complaints, and all applications for increased remuneration or privi- 
leges, from the servants of public companies, should receive mature con- 
sideration ; and all refusals should be given with kindness and courtesy. 
Job, when reduced to distress, consoled himself with the reflection, that 
in his former prosperity, when he was the greatest of all the men of the 
East, (Job xxxi. 13,) he had not despised the cause of his man-servant or 
his maid-servant when they contended with him. Moses enacted, " Thou 
shalt not muzzle the ox when he treadeth out the corn" (Deut. xxv. 4) ; 
and St. Paul has twice quoted this enactment (1 Cor. ix. 9 ; 1 Tim. v. 18 ) ; 
to inculcate the lesson that we ought not to stint the remuneration, nor 
even the enjoyments, of those by whose labor we profit. There is some- 
thing touching in the following text : — " A certain centurion's servant, 
who was dear unto him, was sick, and ready to die." Luke vii. 2. And 
the Psalmist has given us a lovely exhibition of the Divine character in 
the words, " He hath pleasure in the prosperity of his servants." Psalm 
xxxv. 27. 

13. " Exhort servants to be obedient unto their own masters, and to 
please them well in all things, not answering again, not purloining, but 
showing all good fidelity, that they may adorn the doctrine of God our 
Saviour in all things." Titus ii. 9, 10. 

Public companies have a right to expect that their servants should not 
only be obedient during the official hours of business, but that at all times 
their conduct should be such as will be reputable to the company, at- 
tempting to " please them well in all things," " not answering again," 
not objecting to obey any lawful commands, " not purloining, but show- 
ing all good fidelity," not misapplying the property with which they are 
intrusted, not suffering the company to be defrauded or damaged by othe? 
parties. " That they may adorn the doctrine of God our Saviour in all 
things," the servants of a public company are exposed to observation and 
criticism, and its honorable reputation in the world will be affected by the 
estimate that may be formed of their moral and religious character. 

Christian principle is of more importance than brilliant talents, and is 
more highly respected, even by the ungodly. The personal character of 
its servants is sometimes of greater value to a company than their per- 
sonal services, and can less easily be replaced. They adorn the doctrine 
of Christianity when, from Christian motives, they practise those virtues 
which are suitable to their several stations. It gives us a pleasing idea of 
social life among the Hebrews, when we find that not only did the chil- 
dren address the Supreme Being as the God of their fathers, but the ser- 
vants addressed Him as the God of their masters. " Lord God of my 
master Abraham," said Eliezer of Damascus, " I pray Thee send me good 

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Moral and Religious Duties. 

speed this day, and show kindness unto my master Abraham." Gen. 
xxiv. 12. It is one of the duties of the servants of public companies to 
pray for the prosperity of the company whom they serve. 

14. " Pure religion, and undefiled before God and the Father, is this, 
to visit the fatherless and widows in their affliction, and to keep himself 
unspotted from the world." James i. 27. 

Establish a fund for the relief of the widows and children of the ser- 
vants of the company. Such a fund is established by the East India 
Company and by the Bank of England, and why not by all large compa- 
nies ? Mining and railway companies should relieve the widows and chil- 
dren of those who meet with accidents in their respective works. The 
word visit implies that this relief should be generous and kind ; and the 
words in their affliction may suggest that it ought to be prompt and im- 
mediate, not postponed till after their affliction. 

15. " As we have opportunity, let us do good unto all men, especially 
unto them who are of the household of faith." Gal. v. 10. 

Let all your arrangements be adapted to promote the public good, and 
more especially to benefit the moral and religious portion of the com- 
munity. 

" He that diligently seeketh good, procureth favor; but he that seeketh mischief, it 
shall come unto him." Prov. xi. 27. 

Among the minor immoralities of the present age we are disposed to 
place the practice of smoking cigars, to the extent to which it is now car- 
ried. We refer to smoking in the streets, on board of steamboats, and in 
places of public resort, where the smoker can obtain his enjoyment only 
by annoying others, and thus violating the injunction, " Thou shalt love 
thy neighbour as thyself." The public are much indebted to the railway 
companies for prohibiting this practice in their carriages and establish- 
ments, and it is desirable that the steamboat companies should adopt simi- 
lar regulations. 

III. Having considered the duties of patriotism, and the duties of social 
relationship, we now come to the duties of religion. 

By the duties of religion we mean the duties we owe directly to God. 
Those which are most applicable to public companies are, to acknowl- 
edge the hand of God, to promote his worship, and to reverence his 
Sabbaths. 

To acknowledge the power and goodness of God, and our dependence 
on Him for all the blessings we possess, is not less the duty of a public 
company than it is of an individual. Moses cautions the Israelites against 
forgetfulness of God in the time of their prosperity : — 

" Beware that thou forget not the Lord thy God, in not keeping his commandments, 
and his judgments, and his statutes, which I command thee this day : lest when thou 
hast eaten and art full, and hast built goodly houses and dwelt therein : and when thy 
herds and thy flocks multiply, and thy silver and thy gold is multiplied, and all that 
thou hast is multiplied ; then thine heart be lifted up, and thou sayest in thine heart. 
My power and the might of mine hand hath gotten me this wealth. But thou shalt 
remember the Lord thy God : for it is he who gave thee power to get wealth." Deut. 
viii. 11-18. 

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A Treatise on Banking. 

A neglect to acknowledge the hand of God is denounced as a heinous 
offence. The chief national crime charged against ancient Tyre by the 
prophet Ezekiel was, — 

" By thy great wisdom and thy traffic thou hast increased thy riches, and thy heart 
is lifted up because of thy riches." Ezek. xxviii. 5. 

" If ye will not hear, and if ye will not lay it to heart, to give glory unto my name^ 
saith the Lord of Hosts, I will even send a curse upon you, and I will curse your bles- 
sings." Mai. ii. 2. 

They who honor inferior agents, but forget the Cause of all their pros- 
perity, are compared to the heathen fishermen who " sacrifice unto their 
net, and burn incense unto their drag, because by them their portion is 
fat, and their meat plenteous." Hab. i. 16. 

In ancient Rome the merchants and bankers had a public procession 
every year to the temple of Mercury, — who, by a strange association, 
was regarded as the god of merchants and of bankers, of thieves and 
of eloquence, — to offer sacrifices for the blessings they had received ; 
and, as the satirists said, to ask forgiveness for all the frauds and tricks 
they had practised in their trade during the past year. 

In the Middle Ages, the public companies then formed took mottoes, 
many of which were expressive of religious feelings. Thus, if we cast 
our eyes on our Royal Exchange, we shall see that the City motto is 
" Domine dirige Nos " ; and that of the Mercers' Company is " Honor 
Deo." This would not be consistent with the manners of the present 
age, though we believe our public companies are as much disposed to im- 
plore Divine direction, and to render to God the honor of their success, as 
were any of the associations of former days. The way to obtain this di- 
rection, and to have occasion for rendering this honor, is to acknowledge 
the superintendence and kindness of God. 

"In all thy ways acknowledge him, and he shall direct thy paths." Prov. iii. 6. 
K Call upon me in the day of trouble ; I will deliver thee, and thou shalt glorify me." 
Ps. 1. 15. 

We are not friendly to the introduction of religious matters, either by 
individuals or public bodies, into secular intercourse. We have no wish 
that our business meetings should commence with prayer, and conclude 
with the doxology. But surely there must be some way in which a public 
company may, consistently with our national character and the manners 
of the age, express its reliance on Divine Providence, and its gratitude 
for the favors that Providence has conferred. Is there no way in which a 
public company may virtually utter the sentiments so beautifully ex- 
pressed by David : — 

" David blessed the Lord before all the congregation : and said, Blessed be thou, 
Lord God of Israel, our Father, for ever and ever. Thine, O Lord, is the greatness, 
and the power, and the glory, and the victory, and the majesty ; for all that is in the 
heaven and the earth is thine : thine is the kingdom, Lord, and thou art exalted as 
head above all. Both riches and honor come of thee, and thou reignest over all; and 
in thine hand is power and might ; and in thine hand it is to make great, and to give 
strength unto all. Now, therefore, our God, we thank thee, and praise thy glorious 
name. But who am I, and what is my people, that we should be able to offer so wil- 
lingly after this sort; for all things come of thee, and of thine own have we given 
thee " 1 Chron. xxix. 10 - 14. 

404 



Moral and Religious Duties. 

Another religious duty is, to support the public worship of God. Hu- 
man legislation can enforce a small portion only of the moral and relig- 
ious duties of mankind, and can never interfere until vice has grown into 
crime. Some writers on moral philosophy have divided the social rights 
of man into perfect and imperfect. The perfect rights can be enforced 
by human laws. The enactments referring to these rights are generally 
expressed in a negative form : " Thou shalt not kill " ; " Thou shalt not 
steal." The imperfect rights cannot be enforced perfectly by human 
laws. These enactments are generally positive : " Honor thy father and 
thy mother " ; " Thou shalt love thy neighbour as thyself." The fourth 
commandment has one of each kind : " Thou shalt do no manner of 
work " ; " Remember the Sabbath day to keep it holy." Religion ex- 
tends her sway, not only over all the actions of man, but over the mo- 
tives and springs of action (Exod. xx. 17 ; Matt. xv. 19). Religious and 
moral principles implanted in the mind of the community are the only se- 
curity for the performance of religious and moral duties, and the only 
means of acquiring the happiness which the performance of these duties 
tends to produce. 

While we maintain, in the words of our motto, that " property has its 
duties as well as its rights," we maintain, with equal firmness, that prop- 
erty has its rights as well as its duties ; and they who disregard its rights 
have no claim on the performance of its duties. But though the rights 
of property are as sacred as any other rights (Mark x. 19), yet they are 
the first to be disregarded among an immoral or an irreligious population. 
As a portion of the property class, therefore, public companies should 
support the extension of moral and religious principles, as a means of se- 
curing the safe and quiet enjoyment of their possessions. The mainte- 
nance of the public worship of God is one means of extending the knowl- 
edge and influence of these principles. 

But apart from motives of interest, it is no less the duty of public com- 
panies, than of individuals, to promote the honor of their Creator and 
Benefactor ; and to diffuse among others those blessings that attend the 
discharge of religious obligations. 

Public companies should not only give to all their servants the means 
of attending public worship, but they should also contribute towards its 
support in the district in which their operations are carried on. The 
houses and the lands they occupy, if not held by them, would probably 
be occupied by others who would thus contribute. It is, therefore, as 
much their duty as it is the duty of the other parishioners to provide the 
means of religious instruction for their neighbours. Contributions tow- 
ards this object, may not only be a suitable way of performing the duty 
to which we have referred, that of acknowledging their obligations to the 
Divine Being, and of extending those principles by which their own prop- 
erty is rendered more secure, but also of promoting the piety, and, con- 
sequently, the happiness of all the members of the community, and of 
discharging a duty to which is distinctly attached the promise of temporal 
prosperity. 

"Bring ye all the tithes into the storehouse, that there may be meat in mine house, 
and prove me now herewith, said the Lord of Hosts, if I will not open you the win- 

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A Treatise on Banking. 

dows of Heaven, and pour you out a blessing, that there shall not be room enough to 
receive it." Mai. iii. 10. 

Another religious duty is to reverence the Sabbath-day. 

Viewed only with reference to the present life, the institution of the 
Sabbath-day is one of the greatest blessings that religion has conferred 
upon man : — 

" Eemember the Sabbath-day to keep it holy : in it thou shalt not do any work." 
Exod. xx. 8-10. 

It may be observed, that this is the only one of the ten commandments 
that we are expressly enjoined to enforce upon our households, and some 
of the most awful denunciations and threatenings in the Holy Scriptures 
are directed against the violation of the Sabbath-day. After the return 
from the Babylonish captivity, Nehemiah was the most anxious to enforce 
the due observance of the Sabbath : — 

" In those days saw I in Judah some treading wine-presses on the Sabbath, and 
bringing in sheaves, and lading asses ; as also wine, grapes, and figs, and all man- 
ner of burdens, which they brought into Jerusalem on the Sabbath-day : and I testi- 
fied against them in the day wherein they sold victuals. There dwelt men of Tyre 
also therein, which brought fish, and all manner of ware, and sold on the Sabbath 
unto the children of Judah, and in Jerusalem. Then I contended with the nobles of 
Judah, and said unto them, What evil thing is this that ye do, and profane the Sab- 
bath-day ? Did not your fathers thus, and did not our God bring all this evil upon 
us and upon this city 1 Yet ye bring more wrath upon Israel by profaning the Sab- 
bath." Neh. xiii. 15-18. 

The design of the Sabbath is to insure an interval of bodily repose, 
more especially for the humbler classes of society (Deut. v. 14) ; to 
change the current of thought, and thus to preserve the mental powers in 
a state of vigor and freshness ; to give leisure for reflection, and thus 
enable man to look above him, and around him, and within him, and 
consider his own character and destiny ; and to furnish opportunity 
for the discharge of those duties of piety, of kindness, and of benevo- 
lence, which devolve upon him as a moral and religious being. To ex- 
press thankfulness for past mercies is specially named as one of the duties 
to be performed (Deut. v. 15) ; and these feelings are beautifully ex- 
pressed in the 100th Psalm : — 

" O be joyful in the Lord, all ye lands. Serve the Lord with gladness: and come 
before his presence with a song. Be ye sure that the Lord he is God : it is he that 
hath made us, and not we ourselves ; we are his people, and the sheep of his pasture. 
O go your way into his gates with thanksgiving, and into his courts with praise : be 
thankful unto him, and speak good of his name. For the Lord he is gracious : his 
mercy is everlasting ; and his truth endureth from generation to generation." Prayer- 
book translation. 

The institution of the Sabbath-day must not be regarded as diminishing 
the produce of annual labor. By improving the habits and invigorating 
the mental powers, it increases the annual produce of labor, both in re- 
gard to nations and individuals. 

The labor of the Sunday tends not to wealth. It is not the man who 
" adds Sunday to the week " of toil, who employs that holy day in at- 
tending to his ordinary business or in making up his books, — no, it is not 
he who is in the surest road to riches. It is the man who, when the Sun- 

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Moral and Religious Duties. 

day dawns, feels his mind expand with new and exhilarating and en- 
nobling associations ; who, accompanied by his family, appropriately at- 
tired, pays his morning homage in the temple of religion, and passes the 
remainder of the day in works of charity or piety, or in innocent re- 
laxations corresponding with the sanctity of the day ; — that is the man 
who, by improving the intellectual, the moral, and the social faculties of 
his mind, is adopting the surest means. of acquiring wealth and respecta- 
bility in the world. 

They greatly err who imagine they are pleading the cause of the poor 
when they endeavour to remove the religious sanctions of the Sabbath- 
day. Should the mass of the population once entertain the impression 
that the observance of the Sunday is not required by religion, but is 
merely a matter of convenience or expediency, the poor will then have 
no security for cessation from toil. Reasons will soon be found, based 
apparently upon a regard for the poor, for increasing their labor. Let 
the Sunday be regarded no longer as a day of devotion, but merely as a 
day of pleasure, and it will soon become a day of toil. 

Were the Sunday abolished, the poor man would receive no more 
wages for his seven days' labor than he now does for his six. His scale 
of comforts would be reduced, as he would have no occasion for a Sun- 
day's attire. His opportunities of social intercourse and of moral im- 
provement would be abolished. In this and in other cases it is shown 
that Religion, while she is the guide and solace of the wealthy, is pre- 
eminently the friend and guardian of the poor. (See a work just pub- 
lished, on The Temporal Benefits of Christianity, by Robert Blakey, 
Longman.) 

If it be the duty of nations and of individuals to observe the Sabbath- 
day, it must equally be the duty of public companies. We read of no 
dispensation in their favor. The prohibition of any manner of work 
does not except the work of public companies. It is not said that all 
men-servants and maid-servants shall have rest except the servants of 
public companies. Nor are we taught that the violation of the Sabbath- 
day will bring down judgments upon nations, but none upon public com- 
panies. 

But, as in domestic, so in social life, there are certain works of ne- 
cessity, and many duties that must be performed, even on the Sabbath- 
day. (Isa. xlix. 15; Luke xiii. 15; xiv. 5.) In these cases a public 
company will act like the head of a religious family. All the secular 
duties that can be postponed will be postponed to the following day. 
Other duties will be performed in such portions of the day as will permit 
as many servants as possible to attend Divine service ; and those servants 
who cannot be thus favored will be allowed other seasons for the perform- 
ance of this duty. ( We omit here the discussion of the question respect- 
ing Sunday travelling by railways, as inappropriate to the present work.) 

We will not attempt to specify in detail all the works that may lawfully 
be performed by public companies, or by individuals, on the Sabbath-day. 
We will merely observe that, though " the Sabbath was made for man, 
and not man for the Sabbath " (Mark ii. 27), yet, at the same time, they 
who most religiously keep holy the Sabbath-day, may expect to share 
2B 407 



A Treatise on Banking. 

most largely of those spiritual and temporal benefits its institution was 
designed to bestow. 

" If thou turn away thy foot from the Sabbath, from doing thy pleasure on my holy 
day ; and call the Sabbath a delight, the holy of the Lord, honorable ; and shalt honor 
him, not doing thine own ways, nor finding thine own pleasure, nor speaking thine 
own wordj3 : then shalt thou delight thyself in the Lord ; and I will cause thee to 
ride upon the high places of the earth, and feed thee with the heritage of 
Jacob thy Father : for the mouth of the*Lord hath spoken it." Isa. lviii. 13, 14. 

IV. The last class of duties are the duties of benevolence. 

By the duties of benevolence, we mean the duties we owe to the poor. 

Throughout both the Old and the New Testament there is no duty 
more frequently enforced than this, — nor one, to the performance of 
which there is attached so many promises of temporal prosperity. 

Moses, besides enacting many laws that had an especial bearing upon 
the welfare of the poor, enjoined, moreover, the duty of voluntary be- 
nevolence. 

" And if thy brother be waxen poor, and fallen in decay with thee ; then thou shalt 
relieve him: though he be a stranger, and a sojourner." Lev. xxv. 35. 

" For the poor shall never cease out of the land : therefore I command thee, saying, 
Thou shalt open thy hand wide unto thy brother, to thy poor, and to thy needy, in thy 
land." Deut. xv. 11. 

The devotional exercises of the Israelites abound with benedictions on 
those who pitied the poor. 

" Blessed is he that considereth the poor : the Lord will deliver him in time of 
trouble. The Lord will preserve him, and keep him alive ; and he shall be blessed 
upon the earth : and thou wilt not deliver him unto the will of his enemies. The 
Lord will strengthen him upon the bed of languishing : thou wilt make all his bed in 
his sickness." Ps. xli. 1, 2, 3. 

Job said : — 

" When the ear heard me, it blessed me ; and when the eye saw me, it gave witness 
to me : because I relieved the poor that cried, and the fatherless, and him that had 
none to help him. The blessing of him that was ready to perish came upon me; and 
I caused the widow's heart to sing for joy." Job. xxix. 11-13. 

In the Proverbs of Solomon, we read : — 

" He that hath pity upon the poor lendeth unto the Lord ; and that which he hath 
given will he pay him again." Pro v. xix. 17. 

" He that hath a bountiful eye shall be blessed ; for he giveth of his bread to the 
poor." Prov. xxii. 9. 

" He that hath mercy on the poor, happy is he." Prov. xiv. 21. 

Seasons of festivity were celebrated by granting relief to the poor. 

" The days wherein the Jews rested from their enemies, and the month which was 
turned unto them from sorrow to joy, and from mourning into a good day : that they 
should make them days of feasting and joy, and of sending portions one to another, 
and gifts to the poor." Esther ix. 22. 

" This day is holy unto the Lord your God ; mourn not, nor weep. Go your way, 
eat the fat and drink the sweet, and send portions unto them for whom nothing is pre- 
pared." Neh. viii. 9, 10. 

In the New Testament, we read : — 

" Give, and it shall be given unto you ; good measure, pressed down, and shaken to- 

408 



Moral and Religious Duties. 

gethcr, and running over, shall men give into your bosom. For with the same meas- 
ure that ye mete withal, it shall be measured to you again." Luke vi. 38. 

" Charge them that are rich in this world, that they be not high-minded, nor trust in 
uncertain riches, but in the living God, who giveth us richly all things to enjoy ; that 
they do good, that they be rich in good works, ready to distribute, willing to commu- 
nicate ; laying up in store for themselves a good foundation against the time to come, 
that they may lay hold on eternal life." 1 Tim. vi. 17- 19. 

" Whoso hath this world's goods, and seeth his brother have need, and shutteth up 
his bowels of compassion from him ; how dwelleth the love of God in him ? " 1 John 
iii. 17. 

On the other hand, the most awful denunciations are directed against 
those who are unfeeling towards the poor : — 

"He that oppresseth the poor reproacheth his Maker: but he that honoreth him 
hath mercy on the poor." Prov. xiv. 31. 

" Whoso stoppeth his ears at the cry of the poor, he also shall cry himself, but shall 
not be heard." Prov. xxi. 13. 

" He that oppresseth the poor, to increase his riches ; and he that giveth to the rich, 
shall surely come to want." Prov. xxii. 1 6. 

" He that giveth unto the poor shall not lack ; but he that hideth his eyes shall have 
many a curse." Prov. xxviii. 27. 

The rule by which public companies, as well as individuals, should 
regulate the amount of their contributions to religious and charitable pur- 
poses, is distinctly laid down in the Holy Scriptures, — it is their ability. 

" Every man shall give as he is able, according to the blessing of the Lord thy God 
which hehath given thee." Deut. xvi. 17. 

" Thou shalt truly tithe all the increase of thy seed, that the field bringeth forth year 
by year." Deut. xiv. 22. 

" Upon the first day of the week let every one of you lay by him in store, as God 
hath prospered him." 1 Cor. xvi. 2. 

The spirit of these instructions appears to be, that public companies 
should devote to religious and charitable purposes a certain proportion of 
their annual profits. What that proportion should be, must be determined 
by each individual company. All public companies have the advantage 
of knowing the exact amount of their annual gains. 

" Be thou diligent to know the state of thy flocks, and look well to thy herds." 

The principle of this injunction is, balance your books every half-year, 
in order to ascertain the state of your affairs, and the amount of your 
profits. In all cases we think it better that a fixed sum should be set 
apart at the commencement of the year, rather than the amount should 
be regulated by the caprice of the moment. We think it a good practice, 
even for individuals, and especially for young men commencing life, to 
determine, like Jacob (Gen. xxviii. 22), that a certain part of their future 
gains should be devoted to the cause of piety and benevolence. We 
are not friendly to religious vows ; but we think every prudent man, 
(and public companies are presumed to be assemblies of prudent men,) 
should have fixed principles of action, and not let his discharge of pious 
and charitable duties depend on the impulse of the moment. 

" Every man according as he purposeth in his heart, so let him give, not grudgingly 
or of necessity, for God loveth a cheerful giver." 2 Cor. ix. 7. 

This language seems to imply, that the amount devoted to acts of 

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charity should be the result of previous deliberation, and that those who 
have fixed the amount by a previous purpose, give with more cheerful- 
ness than those whose minds present on every occasion a conflict between 
the suggestions of liberality and those of selfishness, and who grudgingly 
comply with the solicitations of others, or give as a necessity imposed on 
them by their social position. 

We are no advocates for indiscriminate charity. We think that men 
of business (and of such our public companies are usually composed) 
should show the same prudence in the exercise of their charity as they 
would on other occasions ; they should endeavour to ascertain the way of 
doing the most good with equal means, and should look to the remote as 
well as to the immediate effects of their benevolence. 

The first claim on their liberality, is that of the parish or district in 
which the company conducts its operations. As the locality, if not occu- 
pied by a company, would probably be occupied by individuals, the com- 
pany is morally bound to subscribe to the local charities as liberally as 
would be done by individuals of equal wealth. Another claim is, that of 
charities whose object has some connection with the object of the com- 
pany, or which would relieve the distress of parties employed by the 
company. 

There are also extraordinary cases, wherein, by a sudden visitation of 
Providence, there is general distress ; such as when, by a revulsion of 
trade, large masses of men are thrown out of employment ; or the occur- 
rence of famine, pestilence, or fire. In these cases the appeal is not made 
to us in our local or professional character, but to our national feeling, or 
to our common humanity ; and then public companies have the same du- 
ties to perform as would fall upon individuals of equal wealth. On the 
other hand, there are occasions wherein private charity is more useful 
than public charity ; and it may become the duty of public bodies, as well 
as of individuals, to exercise their benevolence in secret.* 

But it is not necessary that kindness to the poor should always take the 
form of almsgiving. It is often better to prevent poverty than to relieve 
it, — to give employment rather than money, — to grant a loan, than to 
bestow alms. And sometimes public companies can so construct their 
business arrangements, as, without any pecuniary sacrifice, greatly to 
promote the interest and the comfort of the humbler classes of the com- 
munity. Public companies should also cooperate in endeavouring to raise 
the social condition of the poor, by diminishing the hours of labor, by re- 
lieving women and children from unsuitable or oppressive toil, and by ex- 
tending among the rising population the benefits of religious education. 

* Matt. vi. 1-4. It appears to us, that one of the least useful modes of benefiting 
the poor is that of permanent endowments. It seems much better that £ 1,000 were 
distributed immediately to the poor, than that this sum Avere invested in the funds, 
and the interest doled out to the poor of distant generations. Let the benevolence of 
*he present age relieve the distress of the present age ; and let us hope that the benevo- 
lence of future ages will be equal to our own, and equally commensurate with the dis- 
tress which may then exist. This immediate and broadcast charity seems to answer 
best to the scriptural description : " He hath dispersed abroad ; he hath given to the 
poor; his righteousness — not his legacies — endureth for ever." Ps. cxii. 9 ; 2 Cor. 
ix. 9 

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Moral and Religious Duties. 

To remove the ignorance of the poor is a duty not less important than 
to relieve their distress. 

The God of the Bible is described as " the God of knowledge " ( 1 Sam. 
ii. 3) ; and he has implanted in the minds of his creatures a faculty for ac- 
quiring and increasing knowledge. The exercise and improvement of this 
faculty is as much a duty as the improvement of any other talent with which 
we are intrusted. And from the claims of our common humanity, and from 
the relation we all sustain to the same Creator (Mai. ii. 10 ; Acts xvii. 
26), it becomes our duty also to aid others in their pursuit of knowledge. 
The cultivation of our intellectual faculties does not diminish, but increases 
and refines our physical comforts, augments our social pleasure by impart- 
ing to each individual additional claims to regard, exalts our devotional 
feelings by unlocking more of the wisdom and goodness manifested in the 
works of God ; and while the amiable, though injurious, aberrations of the 
moral and religious feelings are controlled by the judgment, the adjudica- 
tions of reason on moral and religious questions are aided and guided by 
an instructed and enlightened conscience. It is quite possible for all 
these advantages to be extended to every individual in the community. 

It is peculiarly the duty and the interest of the rich to educate the poor : 
the morals of their children, and the comfort of their families, depend 
much on the religious education of their servants. Among an educated 
population, the rights of property, — the effects of capital on the demand 
for labor, and the useful tendency of what are called luxuries, — and the 
necessity for order and subordination in the state, will be better under- 
stood. In proportion as the mass of the population are instructed will be 
the amount of national happiness and prosperity. Mighty is the monarch, 
great is the statesman, who can direct the united energies of a nation of 
cultivated minds. The education of the poor is a duty even more incum- 
bent upon public companies than upon individuals. For it is to the inven- 
tions and improvements in science, often made by persons of the working 
class, that many of them owe their existence. Improvements in the ap- 
plication of steam have produced most of our present mining, and steam- 
boat, and railway companies. Increased attention to statistics and the 
laws of mortality has multiplied our insurance companies. The general 
principle on which all our companies are founded, — the power of asso- 
ciation, — is itself the offspring of modern science. Our public compa- 
nies are triumphs of mind ; they denote a high degree of civilization, and 
exhibit, most strikingly, the command of man over the elements of nature, 
as well as over the beasts of the field, and his power in compelling the 
inert properties of matter to become the active ministers of his will. 

Great is the debt of gratitude due by all our public companies to the 
cause of mental cultivation ; and when these companies are computing 
the annual gains which from this source they have acquired, let them not 
forget that the Genius of Mental Cultivation, supported by Benevolence, 
Patriotism, and Religion, and attended by crowds of the uninstructed chil- 
dren of the indigent, stands at their door, and humbly asks payment of a 
portion of this debt. 

Let them in part discharge this debt, by seeing that the children of 
their laborers, and the people of the district, are all supplied with the 

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A Treatise on Banking. 

means of instruction. And afterwards, let them patronize those societies 
which have for their object the education of the children of the poor in 
other districts, and throughout the land. They should also, as far as it 
can be done with justice to others, give promotion to such of their ser- 
vants as devote their leisure to the cultivation of their minds. The time 
has gone by when it was a reproach for a young man to be bookish, as 
he was supposed to abstract so much more time and attention from his 
official duties. It is now well known that the general cultivation of the 
intellectual powers, renders them more effective in every operation in 
which they may be exercised. It is a great advantage to a public com- 
pany to have educated servants.* Their superior knowledge is always 
useful, — the mental discipline they have acquired improves their business 
habits, — and, possessing within themselves a constant source of enjoy- 
ment, they are the less likely to indulge in those expensive pleasures 
which are the usual temptation to neglect and dishonesty. Prov. iii. 13-15; 
iv. 7-9. 

Thirdly. — Having ascertained that public companies are moral agents, 
and having described the duties which, as moral agents, they are bound 
to perform, we shall now inquire what are the rewards or punishments 
which may be expected to follow the performance or non-performance of 
these duties. 

A liability to rewards or punishments is essential to moral agency. To 
say that public companies are moral agents, but that they will not be re- 
warded or punished for any thing they may do, would be to assert a con- 
tradiction. In pursuing our inquiries, therefore, on this subject, we shall 
ask : — I. At what time will these rewards or punishments be received ? 
II. What will be their nature ? III. In what manner will they be ap- 
plied ? and IV. What are the effects these doctrines should produce on 
the conduct of public companies ? 

I. When will these rewards or punishments be bestowed ? 

From the established order of Providence, which causes virtue to be 
followed by happiness, and vice by misery (Prov. xi. 31), and from the 
dispositions implanted in the mind of man, t it may fairly be inferred, 

* " It seems likely that next year a movement will be made in favor of universal 
education. I think it desirable that bank managers, and branch managers, should aid 
this movement in their respective localities, and should support generally, by their as- 
sistance and influence, the formation of literary and scientific institutions. This would 
afford an outlet for any surplus energy of character that might remain after the hours 
of business, and enable them to promote the public good, without taking part in politi- 
cal or religious discussions. They would acquire for themselves much pleasurable 
and profitable amusement, would add to the usefulness and respectability of their char- 
acter in public estimation, and thus be enabled to increase the influence of their respec- 
tive establishments." — A farther Extract from the Letter quoted at page 148. 

t Kom. ii. 14, 15. Some writers on moral philosophy have denied that man pos- 
sesses those moral powers which are usually, but perhaps not very properly, called the 
moral sense ; and, to support their sentiments, they have adduced the immoral practices 
of various nations in ancient and modern times ; such as infanticide, the burning of 
widows, &c. They might as well have collected together all the erroneous opinions in 
the arts and sciences that have prevailed in different ages of the world, and then have 
inferred, that man is not endowed with reason. 

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Moral and Religious Duties. 

that the Creator and Governor of the world is a God of truth, and without 
iniquity, just and right is he (Deut. xxxii. 4). And as he also possesses 
omnipotent power, he will assuredly carry his dispositions and purposes 
into effect. But on comparing these attributes of the Supreme Governor 
of the universe with the actual destiny of the righteous and the wicked in 
the present world, we do not perceive that perfect union of virtue with 
happiness, and of vice with misery, which our contemplation of the 
Divine character would lead us to expect, and inquiring minds have often 
been puzzled for a solution of this difficulty. 

" Righteous art thou, Lord, when I plead with thee : yet let me talk with thee of 
thy judgments : wherefore doth the way of the wicked prosper ? wherefore are all they 
happy that deal very treacherously ? " Jer. xii. ] . 

" Thou art of purer eyes than to behold evil, and canst not look on iniquity : where- 
fore (then) lookest thou upon them that deal treacherously, and holdest thy tongue 
when the wicked devoureth the man that is more righteous than he 1 " Hah. i. 13. 

" As for me, my feet were almost gone ; my steps had well nigh slipped. For I was 
envious at the foolish, when I saw the prosperity of the wicked." Ps. lxxiii. 2, 3. 

The book of Job is a controversy upon this question. 
The friends of Job maintained the proposition, that the destiny of men 
in the present life corresponded with their moral character. 

" Remember, I pray thee, who ever perished, being innocent ? or where were the 
righteous cut off? Even as I have seen, they that plough iniquity, and sow wicked- 
ness, reap the same." Job iv. 7, 8. 

" Behold, God will not cast away a perfect man, neither will he help the evil doers." 
Job viii. 20. 

" If thou wert pure and upright ; surely now he would awake for thee, and make the 
habitation of thy righteousness prosperous." Job viii. 6. 

Job does not admit this proposition, but declares that sometimes " the 
tabernacles of robbers prosper, and they that provoke God are secure, 
into whose hand God bringeth abundantly." Job xii. 6. 

In attempting the solution of this difficulty, it may be observed that, 
though not universally, yet generally, virtue and happiness, vice and mis- 
ery, are associated in the dispensations of Providence in the present world. 
And, indeed, in all the moral sciences, the general propositions are subject 
to exceptions, — the moral sciences differing, in this respect, from the ab- 
stract and the physical sciences ; or, to use the language of logicians, there 
is a metaphysical, a physical, and a moral universality (Watts's Logic). 
Thus, though it be a general rule in political economy, that the diligent 
hand maketh rich, yet there are some diligent hands that do not become 
rich. And though it be a general rule in the science of education, that if 
you train up a child in the way he should go, when he is old he will not 
depart from it, yet there are some melancholy exceptions. And thus it 
is a general rule, that the righteous are prosperous and the wicked miser- 
able, in the present world, subject only to those exceptions to which all 
general rules, in the science of morals, are liable. It may also be observed, 
that, when those exceptions do occur, the prosperity of the wicked, and the 
afflictions of the righteous, are only of a short duration (Ps. xxxiv. 19 ; Job 
xx. 5), and often even rectify themselves ; the afflictions of the righteous 
leading to prosperity, and the prosperity of the wicked leading to destruc- 
tion. Gen. xlv. 7, 8 ; Prov. i. 32. 

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It may, moreover, be contended, that outward circumstances are no cer- 
tain index of happiness ; that the wicked man, amid all his prosperity, 
may have a conscience that shall bite as an adder (Prov. xxiii. 32) ; or 
have some particular circumstance that shall give him so much an- 
noyance as to nullify all the pleasures of his success. Esther v. 11 - 13. 
While, on the other hand, the righteous man may possess such inward 
sources of happiness, as shall enable him to rejoice even in tribulation. 
Heb. x. 34 ; Hab. iii. 17, 18. 

But though these considerations may lighten, they do not remove the 
difficulty. It is not consistent with the teachings of our intellectual facul- 
ties, nor with the impulses of our moral feelings, that a Being of immacu- 
late holiness and inflexible justice, and possessed, moreover, of omniscience 
and omnipotence, should permit, in even a single instance, that virtue 
should go unrewarded, and vice should remain unpunished. If the Crea- 
tor of the world were not a righteous Being, he would not have implanted 
a love of righteousness in the minds of his creatures ; and if he be a 
righteous Being, it is reasonable to expect that his righteousness should 
appear in all the operations of his moral government. And as we find 
this is not universally the case (Eccles. vii. 15 ; ix. 2), we are driven to 
the conclusion, that the present state is not a state of final retribution ; that 
the enjoyments and the afflictions of the present life are intended chiefly 
as instruments of moral discipline ; and that there is a future state of ex- 
istence, in which the final distribution of rewards and punishments will 
take place. Thus reason concurs with revelation in teaching us that " it 
is appointed unto men once to die, and after that the judgment." Heb. ix. 
27. The inequalities of the present world will thus be rectified in the 
next, and " every man will be rewarded according to his works." Prov. 
xxiv. 12. 

But, however satisfactory this solution of the difficulty may be with re- 
gard to individuals, it does not apply to the case of public companies. 
Their existence commences and terminates in the present world, and 
they must be rewarded or punished in the present world, or they will 
not be punished or rewarded at all. In the latter case they are ex- 
empted from the moral government of God. With them virtue has no 
reward and vice no punishment. In reply to any exhortations to perform 
their moral and religious duties, they may exclaim, " What is the Al- 
mighty, that we should serve him, and what profit should we have if we 
pray unto him ?" Job xxi. 15. " We know not the Lord, neither will 
we obey his voice." Exod. v. 2. As, however, we cannot suppose that 
God has exempted public companies from his moral government, we must 
infer that they are punished or rewarded in the present state. 

This conclusion rests upon the same evidence as the argument we 
have just stated. In the former 'case the argument stands thus : — 

The Righteous Governor of the world must reward the good and punish the wicked 

But this is not done in the present world. 

Therefore there must be a future world, in which this retribution will take place. 

Our present argument stands thus : — 

The Righteous Governor of the world must reward the good and punish the wick 
ed, whether those actions are performed by public bodies, or private individuals. 

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Moral and Religious Duties. 

But the public companies who now perform good or evil actions will not exist in a 

future world. 
Therefore public companies must be rewarded or punished in the present world. 

The only way of resisting this argument is either to maintain that pub- 
lic companies are not moral agents, and therefore not responsible for their 
good or evil actions, or that they will exist in a future world. The for- 
mer part of the alternative we think we have sufficiently refuted, — the lat- 
ter is too wild to need refutation. Luke xx. 34 - 36. If the marriage 
contract shall then be dissolved, a fortiori, other contracts will also be 
dissolved. 

All the promises and threatenings of Scripture made to nations or 
other bodies of men have a reference to the present world, as it is only in 
the present world that such collective bodies can, in their corporate capa- 
city, be either punished or rewarded. 

II. What is the nature of these rewards or punishments ? 

The object of a public company is to get wealth, — a few patriotic 
shareholders may have taken shares to benefit the countiy or the district 
that may be the field of its operations ; but by far the greater number 
have no other object than to obtain a profitable employment for their 
capital. A public company, therefore, cannot be considered as prosper- 
ous, unless this object be obtained. If then a public company be reward- 
ed, it must be by an increase of its wealth ; if it be punished, it must be 
by a diminution of its wealth. It may be observed, that wealth, riches, 
and similar terms, have usually a relative meaning. Generally they de- 
note the amount of property possessed by each individual in the highest 
classes of society. In this sense, wealthy people are comparatively few. 
But when it is said that " the diligent hand maketh rich," it is not meant 
that every diligent man is placed at the top of society, — that would be 
impossible. It means only, that he possesses more property, and a larg- 
er portion of the comforts of life, than he would possess were he not 
diligent. He is rich, not, perchance, as compared with others, but as 
compared with his former self. 

That wealth is an evil, is not the doctrine of Scripture nor of common 
sense. 

In Scripture, wealth is distinctly called a blessing : — 

" The Lord hath blessed my master greatly ; and he is become great : and he hath 
given him flocks, and herds, and silver, and gold, and man-servants, and maid-servants, 
and camels." Gen. xxiv. 35. 

" Thou knowest how I have served thee, and how thy cattle was with me. For it 
was little which thou hadst before I came, and it is now increased unto a multitude, 
and the Lord hath blessed thee since my coming." Gen. xxx. 29, 30 

" The Lord blessed the latter end of Job more than his beginning : for he had four- 
teen thousand sheep, and six thousand camels, and a thousand yoke of oxen, and a 
thousand she-asses." Job. xlii. 12. 

The exhortation given in Scripture to the rich, to relieve the distress 
of the poor, must be founded on the principle that wealth is a blessing, 
and that poverty is an evil ; for if the poor are more happy, more wise, 
and more virtuous than the rich, upon what ground can the rich be ex- 
horted to relieve the poor ? 

415 



A Treatise on Banking. 

Even the cautions and admonitions given to the rich, assume the prin- 
ciple that wealth is a blessing, — " Better is the poor that walketh in his 
uprightness, than he that is perverse in his ways, though he be rich." 
Prov. xxviii. 6. This asserts that wealth is not so great a blessing as 
moral rectitude ; but still it assumes that wealth is a blessing. This will 
appear if we reverse the sentence ; for though it will then be equally 
true, yet for want of this assumption it will appear ridiculous ; — better 
is the rich that walketh in his uprightness, than he that is perverse in 
his ways, though he be poor. 

" Let not the rich man glory in his riches." Jer. ix. 23. " Biches make themselves 
wings and fly away as an eagle towards heaven." Prov. xxiii. 5. " Charge them 
that are rich in this world, that they trust not in uncertain riches." 1 Tim. vi. 17. 

All these expressions imply that riches are blessings, and though they 
partake of the uncertainty of all earthly blessings, as health, friends, or 
reputation, yet still they are blessings to be received with thanksgiving ; 
1 Tim. iv. 3 ; and to be employed in promoting the honor of God ; 2 
Cor. viii. 7 ; and the good of mankind. 

The Scriptures do not intimate that the personal enjoyment of wealth 
is necessarily sinful. 

Wealth, like any other blessing, may be desired from improper motives, 
James iv. 3 ; and sought by improper means, Prov. xxviii. 22 ; 1 Tim. 
vi. 9 ; and such an ill regulated desire may become the root of all evil, 
1 Tim. vi. 10. It is also true, that when wealth is obtained it has its 
temptations, and so have intellectual superiority, literary excellence, and 
even religious attainments. 2 Cor. xii. 7. But, it is not the honorable 
pursuit of wealth, nor the innocent enjoyment of its advantages, that 
constitutes a crime. " The ground of a certain rich man brought forth 
plentifully, and he said, I will pull down my barns and build greater, and 
there will I bestow my fruits, and will say to my soul, Take thine ease, 
eat, drink, and be merry.'" Luke xii. 16 - 20. There was nothing 
wrong in this. His folly consisted in forgetfulness of the approach of 
death, and his neglect of preparation for a future state. And in regard 
to the other rich man, Luke xvi. 19, it was not his clothing himself 
in purple and fine linen, and faring sumptuously every day ; it was his 
omitting to relieve the poor man who was laid at his gate, and his neg- 
lecting to hear Moses and the prophets, that brought him to the place of 
torment. 

Not only is wealth represented in Scripture as a blessing, but it is a 
blessing promised as a reward to the practice of virtue and piety. 

" All these blessings shall come on thee, and overtake thee, if thou shalt hearken 
unto the voice of the Lord thy God. — Blessed shalt thou be in the city, and blessed 
shalt thou be in the field. — Blessed shall be thy basket and thy store. The Lord 
shall command the blessing upon thee in thy storehouses, and in all that thou settest 
thine hand unto. — And the Lord shall make thee plenteous in goods, in the fruit of 
thy cattle, and in the fruit of thy ground. — The Lord shall open unto thee his good 
treasures, the heaven to give the rain unto thy land in his season, and to bless all the 
work of thine hand." Deut. xxviii. 

" Godliness is profitable unto all things, having promise of the life that now is, and 
of that which is to come. 1 Tim. iv. 8. — By humility and the fear of the Lord, are 
riches, honor, and life. Prov. xxii. 4. — The blessing of the Lord it maketh rich, and 

416 



Moral and Religious Duties, 

he addeth no sorrow therewith. Prov. x. 22. — That I may cause them that love me 
to inherit substance, and I will fill their treasures." Prov. viii. 21. 

The virtues, upon the exercise .of which wealth is most frequently 
promised, are diligence, righteousness, prudence, liberality in the cause of 
religion, and kindness to the poor. 

1. Diligence in business : — 

" The hand of the diligent maketh rich. Prov. x. 4. — The hand of the diligent 
shall bear rule, but the slothful shall be under tribute. Prov. xii. 24. — The soul of 
the diligent shall be made fat. Prov. xiii. 4. — The thoughts of the diligent tend only 
to plenteousness. Prov. xxi. 5. — Seest thou a man diligent in his business, he shall 
stand before kings, he shall not stand before mean men." Prov. xxii. 29. 

" Wealth gotten by vanity shall be diminished, but he that gathereth by labor shall 
increase. Prov. xiii. 11. — Be thou diligent to know the state of thy flocks, and look 
well to thy herds." Prov. xxvii. 23. 

2. Righteousness in social transactions : — 

" The curse of the Lord is in the house of the wicked, but he blesseth the habitation 
of the just." Prov. hi. 33. 

" He that walketh righteously, and speaketh uprightly ; he that despiseth the gain of 
oppressions, that shaketh his hands from holding of bribes, that stoppeth his ears from 
hearing of blood, and shutteth his eyes from seeing evil ; he shall dwell on high : his 
place of defence shall be the munitions of rocks : bread shall be given him ; his water 
shall be sure." Isa. xxxiii. 15, 16. 

" And if thy brother be sold unto thee, and serve thee six years ; then, in the seventh 
year, thou shalt let him go free from thee. And when thou sendest him out free from 
thee, thou shalt not let him go away empty : thou shalt furnish him liberally out ol 
thy flock, and out of thy floor, and out of thy wine-press : of that wherewith the Lord 
thy God hath blessed thee thou shall give unto him. It shall not seem hard unto thee 
when thou sendest him away free from thee ; for he hath been worth a double hired ser- 
vant unto thee, in serving thee six years : and the Lord thy God shall bless thee in all 
that thou doest." Deut. xv. 12, 13, 14, 18. 

3. Prudent habits : — 

" He that loveth pleasure shall be a poor man ; he that loveth wine and oil shall nc 
be rich. Prov. xxi. 17. — The drunkard and the glutton shall come to poverty, and 
drowsiness shall clothe a man with rags. Prov. xxiii. 21. — He that tilleth his land 
shall be satisfied with bread, but he that followeth after vain persons shall have poverty 
enough." Prov. xxviii. 19. 

" He that is slothful in his work is brother to him that is a great waster. Prov. xviii 
9. — A prudent man foreseeth the evil, and hideth himself; but the simple pass on and 
are punished. Prov. xxii. 3. — The sluggard will not plough by reason of the cold ; 
therefore shall he beg in harvest, and have nothing. Prov. xx. 4. — Love not sleep, 
lest thou come to poverty. Open thine eyes and thou shalt be satisfied with bread 
Prov. xx. 13. — In all labor there is profit : but the talk of the lips tendeth only to 
penury." Prov. xiv. 23. 

4. Liberality in the cause of religion : — 

" Honor the Lord with thy substance and with the first fruits of all thine increase 
so shall thy barns be filled with plenty, and thy presses shall burst out with new wine. ' 
Prov. iii. 9, 10. 

" Thou shalt truly tithe all the increase of thy seed, that the field bringeth forth year 
by year. And thou shalt eat before the Lord thy God, in the place in which he shall 
choose to place his name there, the tithe of thy corn, of thy wine, and of thine oil, and 
the firstlings of thy herds and of thy flocks ; that thou mayst learn to fear the Lord thy 
God always. And the Levite, (because he hath nor part or inheritance with thee,) and 
the stranger, and the fatherless, and the wiAow, which were within thy gates, shall 

417 



A Treatise on Banking. 

come, and shall eat and be satisfied ; that the Lord thy God may bless thee in all the 
work of thy hand which thou doest." Deut. xiv. 22, 23, 29. 

4. Kindness to the poor : — 

" If there be among you a poor man of one of thy brethren within any of thy gates 
in thy land which the Lord thy God giveth thee, thou shalt not harden thine heart, nor 
shut thine hand from thy poor brother. Thou shalt surely give him, and thine heart 
shall not be grieved when thou givest unto him : because that for this thing the Lord 
thy God shall bless thee in all thy works and in all that thou puttest thine hand unto." 
Deut. xv. 7, 10. 

These are the maxims that form the Scriptural art of getting rich. We 
often hear of other maxims, — such as, " Mind number one " ; " A penny 
saved is a penny got " ; " Take care of the pence, and the pounds will 
take care of themselves" ; " Charity beginsat home." But these maxims 
are not found among the proverbs of Solomon, nor does the Bible any- 
where teach us that selfishness, niggardliness, and closefistedness, are the 
road to wealth. The Scriptural doctrine is the reverse of this : — 

" The liberal soul shall be made fat : and he that watereth shall be watered also him 
self. Prov. xi. 25. — The liberal deviseth liberal things ; and by liberal things shall he 
stand." Isa. xxxii. 8. 

" There is that scattereth, and yet increaseth ; and there is that withholdeth more 
than is meet, but it tendeth to poverty. Prov. xi. 24. — He which soweth sparingly, 
shall also reap sparingly; and he which soweth bountifully shall reap also bounti- 
fully." 2 Cor. ix. 6. 

And even in those cases in which wealth is obtained by dishonorable 
means, that wealth is represented as soon departing from the possession 
of the individual, and passing into more worthy hands. 

" He that oppresseth the poor to increase his riches, and he that giveth to the rich, 
shall surely come to want. Prov. xxii. ] 6. — The Lord will not suffer the soul of the 
righteous to famish : but he casteth away the substance of the wicked. Prov. x. 3. — 
He that by usury and unjust gain increaseth his substance, he shall gather it for him 
that will pity the poor." Prov. xxviii. 8. 

" The wealth of the sinner is laid up for the just. Prov. xiii. 22. — God giveth to a 
man that is good in his sight wisdom, and knowledge, and joy : but to the sinner he 
giveth travail, to gather and to heap up. that he may give to him that is good before 
God." Eccles. ii. 26. 

Thus we find, that, according to the political economy of the Bible 
wealth is the gift of God, Eccles. v. 19 ; and it is bestowed by him upon 
those that fear God, and keep his commandments. This blessing is not 
always bestowed on righteous individuals, because with individuals this 
is not a state of final retribution ; and they are promised in this world, 
only such a portion of the sunshine of prosperity, as shall conduce to the 
maturing of the excellencies of their character. Rom. viii. 28 ; 1 Cor. hi. 
21. But with public companies this is a state of final retribution, and 
hence, with them righteousness will bring wealth, and wickedness will 
bring poverty. 

III. In what manner are these rewards or punishments applied ? 

Rewards or punishments in the present life reach us as the natural ef- 
fects of the virtues or vices which we practise, or they fall upon us by the 
special visitations of Divine Providence. There is a natural connection, 

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Moral and Religious Duties. 

for instance, between the virtue of temperance and the blessing of health, 
— between industry and wealth, — between honesty and reputation ; and 
when we read, " He that tilleth his land shall be satisfied with bread," 
Prov. xii. 11 ; " The hand of the diligent maketh rich," Prov. x. 4, we 
see at once the connection between the virtues practised and the blessings 
that follow them. 

But when we read, " Honor thy father and thy mother, that thy days may 
be long," Exod. xx. 12 ; " Blessed is he that considereth the poor : the 
Lord will deliver him in time of trouble," Ps. xli. 1 ; we do not so readily 
see the connection between the duty and the blessing. We do not 
see why filial piety should be connected with longevity, nor why consider- 
ing the poor should produce deliverance from trouble. These, then, are to 
be considered as commandments " with promise." Eph. vi. 2. The 
connection between the duty and the blessing depends on the promises of 
God. It may so be, that in the secret machinery of Providence the con- 
nection between the virtues and the blessings may be as natural and as ne- 
cessary in these latter cases as in the former, but the connection is not so 
obvious to us, and therefore, when these blessings occur, we view them 
as coming directly from the special visitations of the Most High. It may 
also be observed that, even in the former cases, the connection is not so 
necessary or so constant as to supersede the necessity for the Divine bles- 
sing. For though industry has a tendency to produce wealth, yet, in ma- 
ny individual cases, it does not do so. In this, and in other moral laws, 
the Supreme Being appears to have left them open to exceptions, in order 
to keep up the sense of dependence and the feelings of devotion in the 
minds of his creatures. 

It may be observed, in general, that a principle of righteous retaliation 
appears to be the prevailing principle of the Divine government. 

The Scriptures abound with declarations of this principle : — 

"I the Lord search the heart, I try the reins, even to give every man according to 
his ways, and according to the fruit of his doings. ' Jer. xvii. 10. — "Whatever good 
thing any man doeth, the same shall he receive of the Lord." Eph. vi. 8. 

" For if ye forgive men their trespasses, your heavenly Father will also forgive you : 
but if ye forgive not men their trespasses, 'neither will your Father forgive your tres- 
passes. Matt. vi. 14, 15. — He that doeth wrong shall receive for the wrong which he 
hath done. Col. iii. 25. — It is a righteous thing with God to recompense tribulation 
to them that trouble you." 2 Thess. i. 6. 

"Judge not, that ye be not judged. For with what judgment ye judge, ye shall be 
judged : and with what measure ye mete, it shall be measured to you again." Matt, 
vii. 1.2. 

" Whoso rewardeth evil for good, evil shall not depart from his house. Prov. xvii. 
13. — Whoso causeth the righteous to go astray in an evil way, he shall fall himself 
into his own pit. Prov. xxviii. 10. — They shall eat of the fruit of their own way, and 
be filled with their own devices." Prov. i. 31. 

This principle prevails throughout all the enactments of the Mosaic law. 

" If a man cause a blemish in his neighbour ; as he hath done, so shall it be done to 
him. Lev. xxiv. 19. — Eye for eye, tooth for tooth, hand for hand, foot for foot. Exod. 
xxi. 24. — If a false witness rise up against any man to testify against him that which 
is wrong; then shall ye do unto him, as he had thought to have done unto his brother. 
Deut. xix. 16, 19. — "Whoso sheddeth man's blood, by man shall his blood be shed." 
Gen. ix.6. 

The denunciations of Scripture often refer to this principle. 

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A Treatise on Banking. 

" Ye shall not afflict any widow, or fatherless child. If thou afflict tfem in anywise, 
and they cry at all unto me, I will surely hear their cry ; and your wives shall be 
widows, and your children be fatherless. Exod. xxii. 22-24. — Because thou hast 
spoiled many nations, all the remnant of the people shall spoil thee. Hab. ii. 8. — The 
children also of Judah and the children of Jerusalem have ye sold unto the Grecians ; 
and I will sell your sons and your daughters into the hand of the children of Judah, 
and they shall sell them to the Sabeans." Joel iii. 6, 8. 

Many of the facts recorded in Scripture illustrate the application of 
this principle. 

" But Adonibezek fled, and they pursued after him, and caughthim, and cut off his 
thumbs, and his great toes ; and Adonibezek said, Threescore and ten kings having 
their thumbs and their great toes cut off, gathered their meat under my table: as I have 
done, so God hath requited me." Judges i. 6, 7 

" Samuel said unto Agag, As thy sword hath made women childless, so shall thy 
mother be childless among women. 1 Sam. xv. 33. — Elijah said to Ahab, Thus saith 
the Lord, In the place where dogs licked the blood of Naboth, shall dogs lick thy 
blood, even thine. 1 Kings xxi. 19. — They hanged Haman on the gallows that he had 
prepared for Mordecai." Esther vii. 10. 

Providence seems to have implanted in the mind of man a desire of 
witnessing the application of this principle. An honorable feeling of grat- 
ification arises in virtuous minds, when the man of violence, of fraud, or 
oppression, has been punished in a way corresponding to his crime* 
and by means brought on by his own actions. Hence the Psalmist 
prays, " Let the wicked fall into their own nets, whilst that I withal es- 
cape." Ps. cxli. 10. " Let his net that he hath hid catch himself: into 
that very destruction let him fall." Ps. xxxv. 8. And he rejoices in wit- 
nessing the accomplishment of his desires. " The wicked is snared in 
the work of his own hands. The heathen are sunk down in the pit that 
they made : in the net which they hid is their own foot taken." Ps. ix. 
15, 16. " They have digged a pit before 'me, into the midst whereof 
they are fallen themselves." Ps. lvii. 6. 

We should infer from these principles, that, in the ordinary course of 
Providence, it will be natural to expect that public companies will receive 
their rewards or punishments as the result of their own actions. And this 
will more obviously be the case when prosperity is bestowed as the re- 
ward of diligence, righteousness, or prudence. But when success is be- 
stowed as the reward of the duties of religion or benevolence, it may arise 
from sudden or unexpected causes. At the same time, we cannot lay 
down any rules for the Divine procedure. " He giveth not account of 
any of his matters." Job xxxiii. 13. " He will destroy the wisdom of 
the wise, and will bring to nothing the understanding of the prudent." 
1 Cor. i. 19. He can unlock fresh sources of prosperity, or open new 
fountains of affliction whenever he thinks meet to do so for the moral 
discipline of his intelligent creation. " The Lord maketh poor and mak- 
eth rich : He bringeth low, and lifteth up." 1 Sam. ii. 7. " When he 
giveth quietness, who then can make trouble ? and when he hideth his 
face, who then can behold him, whether it be done against a nation or 
against a man only ? " Job lxxxiv. 29. With regard to public com- 
Danies, as well as individuals, " He putteth down one, and setteth up 
another, and none can stay his hand, or say unto him, What doest 

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Moral and Religious Duties. 

thou ? " Ps. lxxv. 7 ; Dan. iv. 35. But though " clouds and darkness 
are round about him, yet righteousness and judgment are the habitation 
of his throne." Ps. xcvii. 2. And he will so arrange the dispensations 
of his providence, " that men shall say, Verily, there is a reward for 
the righteous ; verily, there is a God that judgeth in the earth." Ps. 
lviii. 11. 

IV. The effects which a liability to these rewards and punishments 
should produce on the conduct of public companies. 

The doctrine we have endeavoured to establish is, that public compa- 
nies are moral agents, capable of performing good and evil actions. That 
those which perform good actions will be rewarded, and those which per- 
form evil actions will be punished ; and that those rewards and punish- 
ments will consist generally in an increase or diminution of their wealth. 
We shall now notice the practical application which public companies 
may make of this doctrine. 

A liability to be rewarded or punished according to their works should 
naturally induce public companies to act in such a way as to obtain the 
reward and to avoid the punishment. This is to be done by performing 
the duties we have described. Let them perform the duties they owe to 
their country, and to those with whom they are socially related ; their du- 
ties to God and to the poor ; and they may hope with confidence for those 
blessings which are promised to follow the performance of those duties. 

1. Public companies should not use this doctrine uncharitably in the 
opinion they form of other companies which are not so prosperous as 
themselves. 

Our doctrine does not teach us that success will immediately, in all 
cases, follow the performance of the duties we have described : nor that 
success will be unchecked or unalloyed. A few years is a short period 
in the history of a public company, and we can form no judgment from 
so short a period of its ultimate success. Nay, it may be that these few 
years of struggle and difficulty may be the foundation of its future great- 
ness. We should, therefore, judge illogically and uncharitably, were we, 
from the temporary distress of a public company, to infer that it was de- 
ficient in the performance of its moral and religious duties. We know 
enough of the principles of the Divine government to be able to regulate 
our own conduct, but not enough to enable us to pass sentence on the 
conduct of others. Luke xiii. 1 - 5 ; Acts xxviii. 3-6. 

2. Public companies should not envy other public companies, who may 
have neglected their moral and religious duties, and yet, for a time, may 
enjoy a high degree of apparent prosperity. 

When large fortunes are suddenly acquired by comparatively slight 
deviations from the path of rectitude, even virtuous minds are almost 
tempted to regret their own purity, and to exclaim, " Verily, I have 
cleansed my heart in vain, and washed my hands in innocency. Behold 
the ungodly, who prosper in the world ; they increase in riches." Ps. 
lxxiii. 12, 13. But we are cautioned against the indulgence of this dis- 
position. 

" Fret not thyself because of evil doers, neither be thou envious against the workers 

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A Treatise on Banking. 

of iniquity. For they shall soon be cut down like the grass, and wither as the green 
herb. Rest in the Lord, and wait patiently for him : fret not thyself because of him 
who prospereth in his way, because of the man who bringeth wicked devices to pass. 
Fret not thyself in any wise to do evil ; for evil doers shall be cut off : but those that 
wait upon the Lord, they shall inherit the earth. For yet a little while, and the wicked 
shall not be : yea, thou shalt diligently consider his place, and it shall not be." Ps. 
xxxvii. 1-10. 

" I have seen the wicked in great power, and spreading himself like a green bay- 
tree. Yet he passed away, and, lo, he was not : yea, I sought him, but he could not 
be found." Ps. xxxvii. 35, 36. 

3. Let those public companies which are not successful examine the 
duties we have described, one by one, and ascertain if they have per- 
formed them all. If they find they may justly be charged with omissions, 
then " put away the evil of your doings ; cease to do evil ; learn to do 
well ; seek judgment, relieve the oppressed, judge the fatherless, plead 
for the poor. If ye be willing and obedient, ye shall eat of the fruit of 
the land." Isaiah i. 16, 18, 19. If they find they have performed all 
their duties, and yet are not successful, let them not " be weary in well- 
doing, for in due season they shall reap, if they faint not." Gal. vi. 9. 

4. Let those public companies which are prosperous also examine how 
far they are chargeable with a neglect of any of their moral or religious 
duties. " If weighed in the balance, and found wanting" (Dan. v. 27), 
let them reflect on the transient nature of unsanctified prosperity. 

" Behold, these are the ungodly, who prosper in the world ; they increase in riches. 
Surely thou didst set them in slippery places : thou castedst them down into destruc- 
tion. How are they brought into desolation as in a moment! " Ps. lxxiii. 12, 18, 19. 

" Lo, this is the man that made not God his strength ; but trusted in the abundance 
of his riches, and strengthened himself in his wickedness. God shall destroy thee for 
ever, he shall take thee away, and root thee out of the land of the living." Ps. lii. 5, 7. 

If they find that they have strictly observed the duties of morality, but 
neglected those of religion and benevolence, let them recollect that, al- 
though it is said, " To do justice and judgment is more acceptable to the 
Lord than sacrifice " (Prov. xxi. 3), thus intimating that morality without 
religion is better than religion without morality, yet the union of both is 
essential to perfection of character and to the attainment of the highest 
degree of prosperity. If they have received those blessings which are 
promised to the exercised of diligence, righteousness, and prudence, let 
them endeavour to obtain those also which are promised to religion and 
benevolence. Let them not allow it to be said, that though " diligent in 
business " (Prov. xxii. 29), yet they have not " diligently followed every 
good work" (1 Tim. v. 10), that their righteousness refers only to tem- 
poral affairs, and though scrupulously observant of the rights of man, yet 
they have been unmindful of the rights of God (Deut. xxxii. 18) ; that 
their wisdom is only the wisdom of this world, and not the wisdom which 
cometh from above, which is " first pure, then peaceable, gentle, and 
easy to be entreated, full of mercy and good fruits" (James iii. 17) ; and 
that their splendid buildings are temples devoted to the service of Mam- 
mon (Matt. vi. 24), from whose altars no sacrifices of thanksgiving (Ps. 
cxvi. 17) ascend to the Most High, and at whose gates the poor and the 
needy stand and plead in vain. (Deut. xv. 7 ; Luke xvi. 21.) 

As for those public companies that have performed all their moral and 

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Moral and Religious Duties. 

religious duties, and have obtained all the promised prosperity, they have 
only to indulge in the pleasing duties of gratitude and joy. 

" Go thy way, eat thy bread with joy, and drink thy wine with a merry heart, for 
God now accepteth thy works." Eccles. ix. 7. 

" Because the Lord thy God hath blessed thee in all thy increase, and in all the 
works of thine hands, therefore thou shalt surely rejoice." Deut. xvi. 15. 

" Peace be within thy walls, and prosperity within thy palaces." Ps. cxxii. 7. 

It affords pleasure to God (Ps. xxxv. 27) and to men (Prov. xi. 10 ; 
xxix. 2) to see piety and virtue in a state of prosperity. 

And let those individuals who, from their talents, their wealth, or their 
position, have the power of influencing the conduct of public companies, 
recollect they are responsible for the exercise of the influence they pos- 
sess ; and although these companies will cease to exist with the present 
world, yet individuals will not. And those who from Christian motives 
may cause the companies with which they are connected to pay higher 
attention to their moral and religious duties, and who thus shall " turn 
many to righteousness " .(Dan. xii. 3), may expect that, after they have 
served their generation (Acts xiii. 36), according to the will of God, they 
will be permitted, through Divine grace, to join the company of angels, 
and the spirits of just men made perfect (Heb. xii. 22, 23), whose names 
are written in the Lamb's Book of Life. Rev. xxi. 27. 

2C 



A Treatise on Banking, 



Section IX. — TEN MINUTES' ADVICE ABOUT KEEPING A 

BANKER.* 



" He that hearkeneth unto counsel is wise." — Proverbs. 



1. A banker is a man who has an open shop with proper counters, 
clerks, and books, for receiving other people's money in order to keep it 
safe, and return it upon demand. 

2. The building or shop in which this business is carried on, is usually- 
called in London a " Banking-house," but in Scotland, and in the country- 
parts of England, it is called a " Bank." The word " bank " is also em- 
ployed to denote the partnership or company who carry on the business 
of banking. Thus we say, the Bank of Scotland, the London and West- 
minster Bank, the Bank of Messrs. Coutts & Co. 

3. When a company of this kind does not consist of more than six 
partners, it is called a " Private Bank " ; but when the company consists 
of several hundred partners, it is called in Scotland a " Public Bank," 
and in England a " Joint-stock Bank." 

4. A private bank is usually managed by one or more of the partners, 
and all the partners are styled bankers. A public bank is managed by a 
principal officer, who is usually styled a manager. In England a bank 
manager is not commonly called a banker ; but in Scotland all managers 
of banks, and managers of branch banks, are called bankers. So mind, 
when I use the word " banker," you may apply it to either a private 
banker, or to a bank manager, whichever you please, as my observations 
will be as applicable to one as to the other. A banker is a man who car- 
ries on the business of banking ; and whether he carries it on upon his 
own account, or as the agent of a public company, it appears to me to 
make no difference as to his claims to be called a banker. 

5. It is the business of all these banks to receive other people's money, 
and to return it upon demand. And when any person puts money into 
one of these banks he is said to open an account with the bank ; and 
when he has thus opened an account, and continues to put in and draw 
out money, he is said to have a current account, or, in London phraseolo- 
gy, " to keep a banker." 

6. In Scotland almost every man has an account of some sort with a 
bank. The rich man in trade has an account because of the facility of 
conducting his operations ; the rich man out of trade has an account be- 
cause he gets interest upon his lodgments, and he keeps his money in the 
bank until he has an opportunity of investing it elsewhere at a better rate 

* I published this Section separately, in the year 1839, under the title of " Ten 
Minutes' Advice to the Middle Class of People about Keeping a Banker. By a Prac- 
tical Banker." 

424 



Ten Minutes' Advice. 

of interest. The middle class of people have an account because of the 
convenience of it, and because they obtain the discount of their bills, and 
perhaps loans, on giving two sureties, which are called cash credits. The 
poorer classes lodge their small savings in the bank, because of the secu- 
rity, and because they get interest on the sums which are lodged. 

7. But in London the practice of keeping an account with a bank is by 
no means so common as in Scotland. The London banks are banks only 
for the rich. The bankers require that every person opening an account 
shall always have a sum to his credit ; and if the sum thus kept is not 
what they deem sufficient, they will close the account. Hence the mid- 
dle class of people in London have no banker at all, and the poorer class 
lodge their money in the savings banks, where they get interest, which 
they would not get from the London banker. It should also be stated, 
that besides keeping a sufficient balance, a party opening an account with 
a London banker is expected to give a certain sum every year to the 
clerks. This is called Christmas money, and the object is merely to en- 
able the banker to pay a less salary to his clerks, at the expense of his 
customers. 

8. But, within a few years, public or joint-stock banks have been es- 
tablished in London. These banks, or at least some of them, will allow 
you to open an account without promising to keep a large balance, or 
even any balance at all, provided you pay a small sum annually as a com- 
mission. This sum is fixed when you open the account, and it is about 
the same that you would be expected to give as Christmas-money to the 
clerks of a private bank. Hence people of moderate incomes, and those 
who can employ the whole of their capital in their business, are now able 
to keep a banker. These banks, too, give interest on deposits, whether 
the sums be large or small, as I shall hereafter explain. 

9. The first public or joint-stock bank established in London was the 
London and Westminster Bank. This bank is in Lothbury, and it has 
branch establishments at No. 1 St. James's Square; No. 214 High Hol- 
born ; No. 3 Wellington Street, Borough ; No. 87 High Street, White- 
chapel ; and No. 4 Stratford Place, Oxford Street. The success of this 
bank has led to the formation of several others. You will observe, that 
all banks which have branches conduct their business on the same terms 
at the branches as they do at the central office. 

10. Since, then, the Scotch system of banking is established in Lon- 
don, why should not the keeping of a banker be as general in London as 
in Scotland ? I have stated, that, under the old system, those chiefly who 
were denied banking facilities were the middle class of people. Now, 
these people may be subdivided into two classes, — those who are en- 
gaged in trade, and those who are not. I shall address myself, in the 
first place, to the former class. 

11. Now, I ask you, why don't you keep a banker? You say you 
have been in business several years, and have never kept one. Of course, 
if no banker would take your account, you could not do otherwise ; but 
now there are bankers willing to take your account. But you say, you can 
do without a banker. Of course you can. The question is, not whether 
by possibility you can do without a banker, but whether you cannot do 

425 



A Treatise on Banking. 

better with one. But you reply, it would not be worth any banker's 
while to take your account. That is for his consideration, not for yours. 
The question for you to decide is, not whether your keeping a banker 
would be of use to him, but whether it would be of use to yourself. I 
shall point out to you some of the advantages. 

12. In the first place, by keeping a banker your money will be lodged 
in a place of security. You have now £50 or £ 100, or perhaps some- 
times £ 200, that you keep in your own house ; you take it up into your 
bedroom at night, and when you go out on Sunday you carry it in your 
pocket. Now, you may lose this money out of your pocket, the till may be 
robbed by your servants, or your house may be broken open by thieves, 
or your premises may take fire and the money may be burnt. But even 
should you escape loss, you cannot escape anxiety. When you have a 
little more money than usual, you have fears and apprehensions lest some 
accident should occur. Now, you will avoid all this trouble by keeping a 
banker. 

13. The banker will not only take care of your money, but also of any 
thing else you commit to his charge. You can get a small tin box with 
your name painted on it, and into this box you can put your will, the 
lease of your house, policies of insurances, and any deeds or other docu- 
ments that require particular care. You can send this box to your 
banker, who will take care of it for you ; and you can have it back 
whenever you like, and as often as you like. If your premises are in- 
sured, it is clearly improper to keep the policy on the premises : for if the 
house be burnt, the policy will be burnt too ; and where then is your evi- 
dence of claim upon the insurance office ? 

14. Another advantage is the saving of time. When you receive 
money you will send it in a lump to the bank ; and when you pay away 
money you will draw cheques upon the bank. Now to draw a cheque 
takes up much less time than counting out the money that you have to 
pay, and perhaps sending out for change because you have not the exact 
sum. Besides, you sometimes hold bills which, when due, you have to 
send for payment ; now you can lodge these with your banker, who will 
present them for you. And when you accept bills, you will make them 
payable at your banker's, instead of making them payable at your own 
house. Now in all these cases there is a great saving of time ; and, be- 
sides, your bills, from being made payable at a bank, will be considered 
more respectable. 

15. Another advantage of keeping a banker, is, that it will be a check 
upon your accounts. I need not speak to you, as a trader, of the impor- 
tance of correct accounts. Your banker's book will be an authentic rec- 
ord of your cash transactions. If you make a mistake in your trade 
books, the banker's book will often lead to a detection of the error. If 
you have paid a sum of money, and the party denies having received it, 
you can refer to your banker's account, and produce your cheque, which 
is as good as a receipt. By means of a banker's account, you could trace 
your receipts and payments, even after a number of years had elapsed ; 
and hence disputed accounts could be readily adjusted, and error, arising 
from forgetfulness or oversight, be speedily rectified. 

426 



Ten Minutes' Advice. 

16. I could mention several other reasons why you should keep a 
banker.* But what I have said will be enough to induce you to make a 
trial ; and when you have once opened an account, you will find so much 
convenience from it, that you will require no further reasons to induce 
you to continue it. If it should not answer your expectations, you can, 
whenever you please, close it again. 

17. Now, then, as you have made up your mind to keep a banker, the 
next thing is to determine at what bank you will open your account. On 
this point I must leave you to make your own choice. All the public 
banks issue prospectuses, containing a list of their directors, the amount 
of their paid-up capital, the names of the bankers who superintend their 
respective establishments, and their rules for transacting business. You 
can get a prospectus from each bank, compare them together, and please 
your own fancy. But if you have no other grounds for preference, I ad- 
vise you to open your account with the bank or branch bank that is 
nearest to your own place of business. You will often have to go 
or send to the bank, and if it be a great way off, much time will be lost, 
and you will at times be induced to forego some of the advantages of keep- 
ing a banker rather than send to so great a distance. On this account, 
let your banker be your neighbour. Recollect, time is money. 

18. There is no difficulty in opening an account. You will enter the 
bank, and ask for the manager. Explain to him what you want to do. 
He will give you every information you may require, and you will re- 
ceive, without charge, a small account book called a Pass-book, and a 
book of cheques. I advise you to keep these two books, when not in use, 
under your own lock and key. 

19. You now require no further advice from me, as your banker will 
give you the most ample information respecting the way of conducting 
your account. Nevertheless, I may mention a point or two for your own 
government: — Do not depend entirely upon your banker's Pass-book, 
but keep also an account in a book of your own. Debit your banker 
with all cash you may pay into the bank, and credit him for all the 
cheques you may draw at the time you draw them. Send your Pass- 
book frequently to be made up at the bank ; and when it returns, always 
compare it with your account-book. This will correct any mistake in the 
Pass-book. Besides some of your cheques may not be presented for pay- 
ment until several days after they are drawn ; and if, in the mean time, 
you take the balance of the banker's Pass-book, you will seem to have 
more ready cash than you actually possess, and this may lead you into 
unpleasant mistakes. 

20. When you lodge any money at the bank, always place the total 
amount of the cash and your name, at full length, upon the outside of the 
parcel, or on a slip of paper. The cashier will then see at once if he 
agrees with your amount. This will save time, and prevent mistakes. 

21. Be always open and straightforward with your banker. Do not 

* The reasons assigned here have a reference chiefly to London banking. The ope- 
rations of country banking are familiarly described ki " The Anatomy and Philosophy 
of Banking; or, the True Character and Value of Banks briefly explained to the 
Middle Classes of Society. By James Strachan." (Groombridge, publisher.) 

427 



A Treatise on Banking. 

represent yourself to be a richer man than you are ; do not discount with 
your banker any bills that are not likely to be punctually paid when 
due ; and should any be unpaid and returned to you, pay them yourself 
immediately. Do not attempt to overdraw your account ; that is, do 
not draw cheques upon your banker for more money than you have in his 
hands, without first asking his consent ; and if you make him any prom- 
ises, be sure that they be strictly performed. If you fail once, the bank- 
er will hesitate before he trusts you again. 

22. Should you be dissatisfied with any thing connected with your ac- 
count, make your complaint to the banker himself, and not to the clerks. 
Let all your communications be made in person, rather than by letter. 
But do not stay long at one interview. Make no observations about the 
weather or the news of the day. Proceed at once to the business you 
are come about, and when it is settled, retire. This will save your bank- 
er's time, and give him a favorable impression of your character as a man 
of business. 

23. If you are in partnership, besides opening an account with your 
banker in the names of the firm, you should open a private account for 
yourself, that your personal affairs may be kept separate from those of 
the partnership. Or if you are in an extensive way of business, and 
have a large family, it is advisable that you open a separate account with 
your banker in the name of your wife, that your trade payments and your 
household expenses may not be mixed up together in the same account. 
This is a good way of ascertaining the exact amount of your family ex- 
penditure. 

24. If you are appointed executor or assignee to an estate, or become 
treasurer to a public institution or charitable society, open a separate ac- 
count with your banker for this office, and do not mix other people's 
moneys with your own. This will prevent mistakes and confusion in 
your accounts. These separate accounts may be kept still more distinct 
by being opened with another banker, or at another branch of the same 
bank. 

25. There are a good many of the middle class of people who are not 
in trade, and I must now address them. Perhaps you are a clergyman, 
or a medical man, or you are in a public office, or are living on your 
rents or dividends. At all events, whatever you may be, I conclude you 
are not living beyond your means. If you are, I have not a word to say 
to you about keeping a banker ; you will soon, most likely, be within the 
keeping of a gaoler. 

26. Several of the reasons I have given to the trader will also apply to 
you ; but there is one that applies with much greater force, — the ten- 
dency to insure accurate accounts. As you are not a man of business, 
[ shall not advise you to keep an account of your receipts and your ex- 
penditure. I know you will do no such thing. Should you ever com- 
mence to do so, you will get tired before the end of the year, and throw 
the book aside. Now, if you keep a banker, he will keep your accounts 
for you ; his Pass-book will show you the state of your accounts. All 
the money you receive you must send to the bank, and all your payments 
must be made by cheques upon the bank. If you want pocket-money. 

428 



Ten Minutes' Advice. 

draw a cheque for .£5 or =£10, payable to cash, but by no means dis- 
burse any money but through your banker. Your book will be balanced 
every half-year. You will then see the total amount of your receipts dur- 
ing the half year, and your various payments to the butcher, the baker, 
the tailor, &c. The names to which the cheques are made payable will 
show you for what purpose they were given ; and you should write these 
names in a plain hand, that the clerks may copy them correctly in the 
Pass-book. Now, if you look through your book once every half year 
in this way, you will probably see occasion to introduce some useful re- 
forms into your domestic expenditure. But if you are too lazy to do this, 
hand the book to your wife, and she will do it for you. 

27. I shall now address another class of people. Perhaps you are a 
clerk, or a warehouseman, or a shopman, or a domestic servant. Well, 
you have no occasion to keep a banker ; that is, you have no occasion to 
open a current account. But you have got a little money which you 
would like to put into a safe place, and upon which you would like to re- 
ceive interest. Well, now, listen to me. 

28. If the sum be under £ 10, or if the sum be above £ 10, and you 
are not likely to want it soon, put it into the savings banks ; you will re- 
ceive interest for it at the rate of about £ 3 for every £ 100 for a year. 
But mind, you can only put money into the savings bank at certain hours 
in the week, when the bank is open ; and you cannot put in more than 
<£30 in any one year, nor more than £ 150 altogether, and you will re- 
ceive no interest for the fractional parts of a month, and you cannot draw 
out any money without giving notice beforehand. 

29. If, then, your money is more than £ 10, and you have already 
lodged £30 this year in the savings bank, or £ 150 altogether, or if you 
will have occasion to draw out your money without giving notice, then 
lodge it in one of the public banks. These banks are open every week 
day from nine o'clock in the morning till four in the evening ; they will 
take lodgments of money to any amount, and interest will be allowed 
from the day it is lodged until the day it is drawn out ; and if the sum is 
under £ 1,000, no notice is required. For all sums lodged on interest the 
bankers give receipts called deposit receipts. 

30. When you go to the bank to lodge upon interest any sum under 
£ 1,000, you need not inquire for the manager. Hand your money to 
any clerk you may see standing inside the counter, and ask for a deposit 
receipt. You will be requested (the first time you go) to write your name 
and address in a book which is kept for that purpose, and then the deposit 
receipt will be given to you without any delay. 

31. Mind, this deposit receipt is not transferable ; that is, you cannot 
lend it or give it to any body else. When you want the money, you must 
take it yourself to the bank, and ask the cashier to pay you the amount. 
You will then be requested to write your name on the back of the deposit 
receipt ; the cashier will see that the signature corresponds with the signa- 
ture you wrote in the book when you lodged the money, and will then 
pay you the amount, and keep the receipt. 

32. Although you cannot lodge upon a deposit receipt a less sum in the 
first instance than £ 10, yet, having lodged that sum, you can make any 

«J9 



A Treatise on Banking. 

additions to it you please. Thus, if you wish to lodge £ 5 more, you can 
take your £ 5 note and your deposit receipt for £ 10 to the bank, and get 
a new receipt for £ 15. If, after having lodged £ 10, you wish to lodge 
£ 10 more, you can get a separate receipt for the second £ 10, or have a 
new receipt for £ 20, whichever you please ; and, observe, whenever any 
addition is made to a former receipt, the old receipt is cancelled, and the 
interest due upon it is either paid, to you in money, or added to the 
amount of the new receipt, as may be most agreeable to yourself. 

33. The interest allowed you by the bank will at present be at the rate 
of 2 per cent ; that is to say, after the rate of £ 2 upon every £ 100 for 
a year. 

34. Upon sums above £ 1,000 the interest allowed is sometimes more 
and sometimes less than 2 per cent., according to the value of money, 
that is, according to the rate at which the bankers can employ it again ; 
and a few days' notice is usually required before the money is withdrawn ; 
but upon sums under £ 1,000 the rate of interest varies less frequently, 
and they are always repayable upon demand. 

35. You will be surprised to find how the desire of lodging money in a 
bank will grow upon you. When you had the money in your pocket, you 
were anxious to find reasons for spending it. When you have placed it 
in the bank, you will be anxious to find reasons for not spending it. All 
habits are formed or strengthened by repeated acts. The more money 
you lodge in the bank, the more you will desire to lodge. You will go 
on making additions, until, at last, you will probably have acquired a sum 
that shall lay the foundation of your advance to a higher station in 
society. 



450 



Index Reading. 



Section X. — INDEX READING. 

This book is now brought to a close. Our aim has been to put into 
t such matters as shall be practically useful. We have endeavoured to 
render it more useful by making an Index. We shall now point out the 
uses of this index. 

By means of an index we can refer to any thing that we remember to 
have read. This facility of reference is a great advantage. Without 
it we may have to make a long search, and to read over a good many 
pages, before we find the page we want. An index is also useful in ena- 
bling us to call to mind those parts of a book that we have forgotten. 
After having read through a book, if we read through the index we shall 
be reminded of parts that would otherwise have escaped our recollection. 
And if we continue an occasional perusal of the index, we shall impress 
the whole substance of the book on our memory. An index will often 
bring together those parts of a book in which the same subject is discussed, 
and thus we shall obtain a fuller knowledge of the subject in all its bear- 
ings and relations than we should obtain by our reading without the index. 
An index may be employed as a means of self-examination. If the index 
does not suggest to the mind of a party the main ideas to which it refers, 
he must have read the book very inattentively, and he has yet more to 
learn respecting the subject discussed. The index will thus be a test of 
his attainments. To render the index more useful in this respect, I 
have made some of the references in an interrogative form. The index 
may thus be made to serve the purpose of a catechism. I advise the 
young student in practical banking to endeavour to answer these questions 
without referring to the book, and to answer them aloud. By this means 
he will impress the matter more deeply on his mind, and at the same 
time acquire a facility of expression. 

An index may be rendered useful, not to those only who have read the 
book, but to those who have not read it, and who never will read it. The 
index contains a syllabus of the work. Under a single word is sometimes 
placed a summary of the facts and principles of a whole section. We 
may thus become acquainted with the substance of a book in a short space 
of time. It is true that in this railway mode of obtaining knowledge we 
must forego any gratification that might arise from the style or the illus- 
trations. But the exercise would be profitable. In this way reviewers 
and others are able to acquire a good knowledge of a book, and to form 
a fair opinion of its merits, without reading many pages consecutively. 
But without an index this cannot be done, either so well or so rapidly. 
Intelligent men do not wish to read through a large book on a subject with 
which they are pretty well acquainted. They desire to refer to those 
Doints only on which their own information may be deficient, or on which 

431 



A Treatise on Banking. 

they would desire to know the sentiments of the author. This they can 
easily do by means of an index. Men in business, too, must husband their 
time, and they can afford to read only those parts of a book which they 
deem the most interesting. They may be guided to those parts by means 
of an index. 

There are certain states of body and of mind in which a man is 
not disposed for continuous reading. At such a time it is refresh- 
ing to saunter over an index. Some word may catch the eye, or some 
new idea be excited in the mind, and the faculties may be at once enliv- 
ened and invigorated. In this kind of intellectual loitering we may per- 
chance pick up in our path a flower or a pebble that shall awaken the 
spirit of inquiry, set in motion our powers of investigation, and lead the 
mind into a course of agreeable and profitable meditation. 



432 



Appendix. 



APPENDIX. 

The following paragraphs were omitted : — 

To the statement of the affairs of the bank at page 173, add the follow- 
ing note : — 

Those joint-stock banks that have branches make out a similar statement every week. 
It comprises the balances of the General Ledger at the head-office, and of that of each 
branch. The balance-sheets are printed, and are bound together beforehand, so as to 
form a book ; it is called the Statement Book, and is laid before the directors at their 
weekly meetings. 

Add the following to the end of the section at page 183 : — 

A balance-sheet of the affairs of a commercial house is made out in 
much the same way as that ef a bank. The liabilities are placed on one 
side of the account, and the assets on the other. The items of which 
each side is composed will vary according to the nature and extent of the 
business. Many commercial balance sheets have unfortunately been 
recently brought under the notice of the public ; most of them, as well as 
the annual balance-sheets of some of the joint-stock banks may be found 
in the pages of the Bankers' Magazine. 



THE BANK OF FRANCE. 

The following evidence was given by the late Lord Ashburton, before 
the Committee of the House of Lords on Commercial Distress in 1848 : — 

" Have you any statement which you are desirous of making to the 
committee of information received by you relative to the proceedings of 
the Bank of France ? 

" Having observed that the committee were desirous of knowing some- 
thing about the construction of the direction of the Bank of France, and of 
the conduct of that bank with respect to the several circumstances which 
have been matters of inquiry here connected with the Bank of Eng- 
land, I took the opportunity of making inquiry of a gentleman who was in 
London about ten days ago, who was a director of the Bank of France, 
and who would readily have come and given evidence himself if he had 
no tbeen under the necessity of immediately returning to his own country. 
The inquiry I made of that gentleman related, first of all, to the construction 
of the direction of the Bank of France, and to what extent that direction 
was considered to work well. Then I made inquiry upon some of the 
points more immediately connected with the subject of our inquiries, 
namely, the conduct of the Bank of France with respect to its discounts, 

433 



A Treatise on Banking. 

with respect to the charge of interest, and with respect to any limitation 
or regulation that may be put upon the operations of the bank analogous 
to those which are imposed upon the transactions of our own bank. I 
will first of all state to the committee the facts with respect to the con- 
struction of the bank direction. The Bank of France, as probably most 
of your lordships know, has existed since 1803 ; it was established quite 
at the beginning of the power of Napoleon, and is constituted to this 
day under the same administration ; and I think it may be stated, 
that under all the different variations of government, and the difficulties 
through which that country has passed, the management of the bank has 
been singularly successful and fortunate. There has been at no time any 
suspension of its payments or any material difficulties of any kind ; and 
it seems to have answered perfectly well the object for which that bank, 
like our own, was instituted, namely, as a bank to give proper facilities to 
the circulation and commerce of the country, and at the same time to 
be the bankers of the Government, and to give every proper and legiti- 
mate facility to the operations of the Government. The direction is 
formed in this manner : There is, first of all, a governor, who has a house 
and 60,000 francs a year. There are then two sub-governors, each with 
30,000 francs a year. The governor and sub-governors are both named 
by the Government, and, it is understood, removable by the Government, 
but in point of fact they never are removed. The present governor, 
Monsieur D'Argout, is the third governor of the Bank of France in forty- 
five years ; so that it has been generally considered that, though legally 
removable by the Government, practically they have not been removed. 
Then, besides this governor and two sub-governors, there are three re- 
ceivers-general. Your lordships are probably aware what the position of 
receivers-general is in the financial economy of France. Those three 
receivers-general are selected by the proprietors out of the class of the 
receivers-general ; but the receivers-general are naturally more or less 
connected with the Government and finance department of the country. 
There are then three censors, who are to be elected from the 4 Etat In- 
dustriel' of Paris, — what we should call the manufacturers of Paris. 
It is so regulated by the charter that they must be taken from that class 
of persons ; but although they are called censors, I do not find that they 
have to perform any duty in the direction but the same which is performed 
by the other directors. Then in addition to those there are twelve ordi- 
nary directors, elected in the way in which our bank directors are elected. 

" Are the directors generally paid ? 

" None of them are paid but the governor and the two sub- governors, 
except that there is, I think, ten francs paid upon each attendance, mere- 
ly for the purpose of marking the attendance of persons to their duty, but 
no amount of payment that can be of any importance. The twelve di- 
rectors are taken from the body of merchants, bankers, and leading per- 
sons at Paris, at the discretion of the stockholders. That is the constitu- 
tion of the Bank of France. Upon making inquiry of the gentleman I 
have mentioned as to the system of management, he told me that the real 
detail of the management of the bank is mainly with the two sub-govern. 

434 



The Bank of France. 

ors. They are stated to be very able men, thoroughly acquainted with 
all the circumstances of Paris, and all the persons likely to come to the 
bank for business. And, in short, upon them seems to devolve mainly 
the duty of attending to the details of the management of the bank ; and 
the directors themselves seem to be more checks upon those , sub-govern- 
ors, than to be themselves the managers of the bank. At the same time 
the directors have the power, which the directors of our bank have, to 
vote and to decide upon any measures that are before them. This gen- 
tleman stated to me that he considers the system to work well ; that there 
is no complaint of it. He does not find that the governor and sub-gover- 
nors pursue any interests of the Government as against those of the bank 
and of trade, and the power which they have with the directors is a suffi- 
cient check ; in short, that they have nothing material to complain of in 
the administration. So much for the direction of the bank. Then I pro- 
ceeded to inquire upon several points relating to the management of the 
affairs of the bank ; and first as to the charge of interest. The legal in- 
terest in France is 6 per cent, for moneyed securities, and 5 per cent, for 
land. It is limited, as the interest of this country is limited, to 5 per 
cent, for mortgages upon land, and 6 per cent, as the maximum of legal 
interest for any purpose. The transactions of the Bank of France may 
be said to have varied very little indeed from the limits of 4 to 5 per cent.; 
they never exceed 5, and they have hardly ever been under 4. Un- 
der all circumstances, they have kept that equable rate of interest for 
their discounts and for their general transactions. I should state that the 
discounts of commercial paper by the Bank of France, so far from being 
insignificant, as has been intimated, are in reality very large. I take it 
that upon the average of years the discount of commercial paper by the 
Bank of France, is larger than the discount of commercial paper by the 
Bank of England. They make no distinction between any qualities of 
paper ; all paper is done at the same rate ; but they rather favor what 
they call the paper connected with the common trade of the place. 
Therefore a much larger portion of their discounts is in small bills in the 
regular trade of the place, upon which this gentleman says the loss was 
very insignificant indeed ; that paper usually having three signatures upon 
it, and being founded upon real business, is very seldom attended with 
any loss. What I have stated with respect to the interest that the Bank 
of France charge is in answer to a further question which I put, whether 
they regulated the amount of their discounts at all by demanding a high- 
er rate of interest, as our bank has done of late years. He says they 
have not done that on any occasion ; that the rate has remained, as I have 
stated, uniform, — between 4 and 5 per cent., — and they never attempt 
to lessen the applications by asking a larger rate of interest. 

" Have they any legal minimum of interest ? 

" No ; they have no legal minimum of interest ; but when the inter- 
est comes down very low they consider that a symptom that bank ac- 
commodation is not required. 

" Though they do not alter the rate of interest, do not they vary from 
time to time the rules with respect to the echeance of bills ? 

435 



A Treatise on Banking. 

" That I cannot state. Then he stated further that he has no recollec- 
tion at any time of their refusing the common trade bills of the coun- 
try. If they want to regulate the state of their affairs they do it by in- 
creasing or diminishing what they may hold of public securities, but they 
never reduce or materially vary their transactions with the merchants of 
the country. 

" Then in what sense may they be said to favor one particular des- 
cription of paper ? You said that they rather favored one sort of pa- 
per. In what way do they favor it ? 

" They favor the paper of what I should call legitimate business, — 
paper connected with the real ordinary trade of the country, — in pref- 
erence to the bills of stock-jobbers or large speculators. 

" Then in order to give effect to that distinction they must reject paper 
in some cases ? 

" Undoubtedly ; but it is the paper of ordinary trade that they never 
reject. 

" Have they any rule as to the length of bills ? 

" I cannot state what their rules are in this respect. Then I have only 
lastly to state that there is no limitation as to their issues by law, nor 
is there any regulated limitation among themselves other than what arises 
from their own discretion from day to day as they come to manage their 
affairs. 

" In the exercise of their discretion has not the fact been that the 
amount of bullion kept by the Bank of France has been very large ? 

" Yes ; generally speaking, I believe it has. This gentleman stated to 
me that they had never at any time been under any apprehension as to 
their ability to pay their notes, though undoubtedly we, looking at the 
returns, should think that their condition was rather questionable. 

" You cannot state what proportion the amount of bullion in their hands 
has generally borne to the number of notes they have issued ? 

" I am not able to answer that myself ; but a return is regularly made ; 
it is very easy to know that. 

" Do you know in point of fact that though it is called the Bank of 
France, their notes were not current throughout the whole of France ? 

" Yes ; their circulation is very much confined to Paris ; but at the 
same time, nine tenths of the business of France, like the business in our 
own country, is done by bills upon Paris, and Paris really is the heart of 
the whole circulation. I have only further to state, that of late years they 
have had branch banks, as our bank has had ; but this gentleman says 
the directory did not think favorably of the working of those branch 
banks ; he thought that they had not been profitable to them, and that 
they had rather disturbed their circulation. 

" During the greater part of the time to which your observations have 
applied has not the law confined them to a minimum note of 500 francs ? 

" Yes ; it is only lately that they have come to notes of 100 francs. 

" Did he state what amount of securities they have generally held ; 
what we should call Government securities ? 

" That is stated in the returns which are periodically published. 

" Supposing that the natural value of money in France was 6 per cent. 

436 



The Bank of France. 

and that the ordinary market rate of interest was 6 per cent., does your 
information enable you to state to the committee what the Bank of 
France would do in order to answer the demands which must be made 
upon it if it maintained its own rate of discount at between 4 and 5 per 
cent. ? 

" I should think that if the Bank of France limited their interest to 5 
per cent, they would, except under very extraordinary circumstances, 
guide and regulate the general interest of the place, and that under those 
circumstances they would do the whole of the real commercial paper that 
is presented. What is more singular, the banks in America never go be- 
beyond the legal interest. None of the banks in America discount at a 
higher interest than 6 per. cent., although the market rate of interest in 
that country is very often 10, 15, and 18 per cent 

" What check do they apply ? If they do not impose a restriction by 
raising the rate of interest, must not they impose some other restriction, 
either in the date of the bills or in the securities ? 

" No, it does not necessarily follow ; because those variations in the 
interest do not materially alter the real business connected with drafts from 
Lyons and Havre and other places, and the paper connected with the real 
business of the country. If Mr. Rothschild or any great person were to 
send them in a mass of paper, for the purpose of taking advantage of the 
rate of interest, they would not do it for him. When I say they do ah 
the paper sent in, I should explain that they distinctly make that condi- 
tion, that it shall be paper resulting from the real trade of the country, and 
that seldom materially varies. 

" What is the nature of their relation with the Government ? Do they 
receive the Government deposits and securities ? 

" It is as nearly as possible the same as that of our Bank of England. 

" Do they pay the dividends on the French rentes ? 

" No ; they have nothing to do with the dividends. 

" They are not liable to be called upon by the Government to advance 
money for that particular purpose ? 

" Yes ; if the Government want assistance they stand exactly in that 
respect in the same relation that our bank do to our Government. 

41 Does their charter require them to make advances of that kind when 
demanded, or is it optional ? 

" It is optional. 

" They may act just as they do with the general trade of the country ? 

" Yes. They stand in exactly the same relation to the Government as 
the Bank of England does, except that they have nothing to do with the 
payment of the dividends ; but they hold the deposits of the Government, 
and in fact are the bankers of the Government. 

n Is it optional with them to pay their notes in gold or in silver ad 
libitum 7 

" It is optional to pay either in gold or in silver, but of course they pay 
only in silver at present ; there is a premium at present upon gold of 
about 8 per cent., which has not been known for a long time. 

" What has been the lowest denomination of note that they issue ? 

" I think it is now 100 francs. 

437 



A Treatise on Banking. 

" What is it in ordinary circumstances ? 

" Until lately there were no notes under 500 francs. 

" Will you explain a little more fully the statement you made as to the 
amount of discounts afforded by the Bank of France being larger than 
that afforded by the Bank of England, because the transactions of the two 
institutions certainly are not equal ? 

" If we look back to the returns we see for a long time about the same 
amount of discounts of bills by the Bank of England, — £ 2,800,000, 
£ 2,700,000, £ 2,800,000, £ 2,900,000, and so on. If you take the av- 
erage of the last ten years, I think you will find the discounted bills larger 
in amount in Paris than here. 

" Have the Government any power, not merely of supervising the acts 
of the bank, but of compelling them to adopt any steps that they may 
think fit? 

" No ; they have not. The bank are perfectly independent, and that 
independence has been respected even under Napoleon's government. 

" With respect to those persons called censors, what are their functions 
in the bank ? Are they chosen by the bank proprietors ? 

" They are chosen from among the manufacturers of Paris. It was in- 
tended to provide that there should be three at least of the class of manu- 
facturers of Paris in the direction, and three of the receivers-general. 

" Are the receivers-general official members ? 

" I am not quite sure whether the receivers-general were named by the 
crown, or whether they were elected by the stockholders from the general 
body. 

" They are the receivers-general of taxes ? 

" They are ; there is a receiver in each department." 



Note. — On the night of the 15th March (1848), the Provisional Government consented to the issue 
of an edict exempting the Bank of France from the payment of its notes in specie, — rendering the pre- 
sentation of these notes in payment throughout the territory of France a legal tender ; fixing 350 mil- 
lions of francs as the maximum of the outstanding circulation of the bank at one time ; authorizing the 
immediate issue of notes for 100 francs (£4) each; and finally directing the publication every week, in 
the Moniteur, of a full abstract of the bank's balance sheet. 

Subsequent decrees of the 27th April, 1848, and 2d May, 1848, authorized the incorporation with the 
Bank of France, of the nine "departmental banks" (that is, local joint-stock banks), at Bourdeaux, 
Rouen, Nantes, Lyons, Marseilles, Havre, Lille, Toulouse, and Orleans ; and extended the privilege of the 
Restrictions to the issues of these banks, by augmenting the maximum limit of the total circulation of 
the Bank of France, and all its branches, from 350 millions to 452 millions of francs, or from £ 14,000,000 
sterling to £ 18,000,000 sterling. 

On the 6th August, 1850, the National Assembly of France gave the sanction of a definite law to a pro- 
posal submitted by M. Gouin in the name of a Committee, in favor of the immediate resumption of pay- 
ments in specie by the Bank of France. Few men in France have distinguished themselves more than 
M. Gouin in the defence of all the best institutions of his country ; and it will be universally felt that 
the introduction of a measure of so much delicacy and importance could not have been updertakenby any 
member of the Assembly having a better title than M. Gouin to connect his name with the reestablish- 
ment of the credit circulation of France upon a sound basis. — London Bankers 1 Magazine, Sept., 1850 

438 



The Bank of France. 

THE CONDITION OF THE BANK OF FRANCE ON THE 

7th OF JUNE, 1849. 

Debtor. Fcs. C 

Capital of the Bank, 67,900.000 

Ditto of the ex-Departmental Banks, 23,350,000 

Reserve of the Bank, 10,000,000 

Ditto of the ex-Departmental Banks, 2,980,750 

Reserve of the Bank in Landed Property, 4,000,000 

Bank Notes in Circulation, 362,574,900 

Ditto of the Branch Banks, 29,221.600 

Bank Notes to Order, 920,941 75 

Treasury Account Current Creditor, 23,591,142 45 

Sundry Accounts Current, 109,762,124 54 

Ditto in the Branch Banks, 29,467,205 

Receipts payable at Sight, 3,955,300 

Ditto in the Branch Banks, 1,212,782 

Draughts of the Branch Banks payable by the Bank, .... 6,745,395 61 
Ditto of the Bank payable by the Branch Banks, .... 4,697,068 

Dividends payable, 203,369 25 

Liquidation of the Algiers Branch Bank, 130,952 44 

Sundry Discounts anticipated, 3,574,784 09 

Ditto of the Branch Banks, 1,991,956 

Re-discounted during the last half-year, 246,109 85 

Ditto in the Branch Banks, 460,661 

Sundries, 412,355 86 

Total Francs, 687,449,397 84 



Creditor. Fcs. C. 

Cash in hand, 204,432,108 15 

Ditto in the Branch Banks, 129,579,652 

Commercial Bills Overdue, 172,390 6 

Commercial Bills Discounted, but not yet due, of which 14,556,742f. 

were received from the Branch Banks, 47,680,034 90 

Ditto in the Branch Banks, . . ' 78,395,013 56 

Advanced on a deposit of Bullion, 10,770,400 

Ditto by the Branch Banks, 1,304,193 

Advanced on French Public Securities, ...... 25,064,51740 

Ditto by the Branch Banks, 1,438,405 

Advanced by the State on Treasury Bonds of the Republic, . . 50,000,000 
Advanced by the State on the Loan of 150,000,000f., . . . 50,000,000 

Loan of 10,000,000f, to the city of Paris, 1,000,000 

Loan of 3,000,000f., to the city of Marseilles 1,000,000 

Loan to the Department of the Seine, 3,000,000 

Government Stock reserved, 10,000,000 

Ditto disposable, 42,581,488 13 

Vested in Public Securities by the New Branch Banks, . . 12,779,541 30 

Hotel and Furniture of the Bank, 4,000,000 

Landed Property of the Branch Banks, 2,284,653 

Interest in the National Discount Office, 200,000 

Ditto of the Branch Banks, 230,000 

Commercial Bills protested, and not yet honored, .... 5,997,353 39 

Ditto in the Branch Banks, 3,557,217 

Expenses of the management of the Bank, 571,020 86 

Ditto of the Branch Banks, 486,871 

Sundries, 924,538 95 

Total Francs, 687,449,397 84 

2D 439 



A Treatise on Banking. 

No. IV. 
A Law relating to Banking in New York. 

The following " Act, to amend an Act entitled ' An Act to abolish the 
Office of Bank Commissioner, and for other Purposes, passed April 
18th, 1843,'" passed the Legislature of New York, December 4th, 
1847: — 

The people of the State of New York, represented in Senate and As- 
sembly, do enact as follows : — 

§ 1. The third section of the Act entitled " An Act to Abolish the 
Office of Bank Commissioner, and for other Purposes," passed April 18th, 
1843, is hereby amended, so as to read as follows : — 

It shall be the duty of the comptroller, secretary of state, and treasurer, 
on or before the first Tuesday of January, April, July, and October in 
each year, to fix upon and determine some Saturday in the quarter of 
the year then ended, in respect to which every incorporated bank, bank- 
ing association, and individual banker in the State, shall make a report 
of the character hereinafter specified. Immediately after each determi- 
nation of such Saturday, the officers hereinbefore named shall cause no- 
tice thereof to be published daily, for six successive days, in such news- 
paper published in the city of Albany as shall for the time being have 
the publication of legal notices, under the Act entitled " An Act to Pro- 
vide for the Public Printing," passed March 5th, 1846, or shall serve a 
copy of such notice upon each incorporated bank, banking association, or 
individual banker in the State, by delivering the same to some officer or 
clerk thereof, at their respective places of business, or by depositing the 
same in the post-office, directed to each of such banks, banking associa- 
tions, and individual bankers, or some officer thereof, at their places of 
business respectively. 

It shall be the duty of every incorporated bank, banking association, 
or individual banker in the State, on or before the first day of February, 
May, August, and November, of each year, to make and transmit to the 
comptroller a quarterly report, which report shall be made on the oath of 
the president and cashier, and shall contain a true statement of the con- 
dition of the bank, banking association, or individual banker making such 
report, before the transaction of any business, on the morning of the day 
specified in the notice of the comptroller, secretary of state, and trea- 
surer, next preceding the date of such report, in respect to the following 
items and particulars ; to wit : — 

Loans and discounts, overdrafts, due from banks, due from directors of 
the banks or banking associations making the report ; due from brokers, 
real estate, specie, cash items, stocks and promissory notes, bills of sol- 
vent banks, bills of suspended banks, loss and suspense account, capital, 
circulation, (distinguishing that received from the comptroller from the 
old outstanding bills,) profits, amount due to banks, amount due to indi- 
viduals and corporations other than banks, amount due to the treasurer of 
the State, amount due to the commissioners of canal fund, amount due 
to depositors on demand, amount due, not included under either of the 

440 



Banking in Neic York. 

above heads. And it shall be the duty of the comptroller to publish such 
reports together in the newspapers printed in the city of Albany, in this 
section before named, accompanied with a summary of the items of cap- 
ital, circulation and deposits, specie and cash items, public securities and 
private securities ; and the separate report of each bank, banking asso- 
ciation, and individual banker, shall be published in a newspaper pub- 
lished in the county ; if a newspaper is published in the city or town in 
which any bank is situated, such publication shall be had in such papers 
in which such bank, or banking association, or banking-house of such in- 
dividual banker shall be situated, at the expense of such bank or bank- 
ing association, or individual banker. 

§ 2. Section four of the Act in the first section of this Act referred 
to, is hereby amended so as to read as follows ; to wit : — 

The comptroller shall publish the reports and summary required by 
the third section of this Act, together in one paper, on or before the 25th 
day of August, November, February, and May, in each year ; and the 
expense of such publication shall be defrayed by a percentage assessed 
upon the capital stock of all the banks, and banking associations, and in- 
dividual bankers doing business under the " Act to Authorize the Busi- 
ness of Banking," passed April 18th, 1838, or of any Act amending the 
same in the said State ; and if any such bank, banking association, or indi- 
vidual banker shall fail to furnish to the comptroller its quarterly report 
in time for such publication, it shall forfeit and pay to the comptroller the 
sum of one hundred dollars, to be applied by him to the expense of publish- 
ing the quarterly reports. And if any bank, banking association, or in- 
dividual banker, shall neglect or refuse to make the quarterly report re- 
quired by the third section of this Act, for two successive quarters, it shall 
forfeit its charter (if an incorporated bank), and its privileges as a bank- 
ing association or individual banker, if organized or doing business under 
the Act of April 18th, 1838, in this section before referred to ; and every 
such bank, banking association, and individual banker may be proceeded 
against, and its affairs closed, in any manner now required by law in case 
of an insolvent bank or banking association. 

§ 3. Whenever, in the opinion of the comptroller, there shall be good 
cause to report that any bank, banking association, or individual banker, 
has made an incorrect or imperfect quarterly return, or is in an unsound 
or unsafe condition to do banking business, it shall be his duty to have 
the books, papers, and affairs of such banks, banking associations, or in- 
dividual banker, examined by some competent person, to be designated 
by him, who shall examine fully into his books, papers, and affairs, forth- 
with, and report to the comptroller, on oath, the result of such examina- 
tion ; a copy of which report shall be forthwith published, in the manner 
prescribed in the first and second sections of this Act, in respect to the 
publication of quarterly returns. The reasonable costs and expenses of 
every examination shall be defrayed in the manner prescribed in the 
second section of this Act for paying the expenses of publishing quarterly 
returns. 

§ 4. All individual bankers, and all banking associations, which are 
now or shall be hereafter engaged in the business of banking, under the 

441 



A Treatise on Banking. 

provisions of the Act entitled " An Act to Authorize the Business of 
Banking," shall be subject to taxation on the full amount of capital ac- 
tually paid in, or secured to be paid in, as such capital, by them severally, 
at the actual market value of such securities, to be estimated by the 
comptroller, without any reduction for the debts of such individual banker, 
or banking association ; but in no case shall the capital of any such bank- 
ing association, or individual banker, be estimated at a less sum than the 
amount of circulating notes delivered to such banking association, or indi- 
vidual banker, and not returned to the comptroller ; and, in case the cap- 
ital of such banking association has been reduced by the surrender of 
any securities to the stockholders thereof, and the certificates of stock 
held on account of such securities being surrendered to such banking as- 
sociation and cancelled, such banking association shall not be subject to 
taxation upon such part of its capital. 

§ 5. Nothing in this Act contained shall apply to any bank or banking 
association which has reduced its capital stock in violation of the twenty- 
eight section of an Act entitled " An Act to Authorize the Business of 
Banking," passed April 18th, 1838. 

The following is a summary of all the Banks in the United States : * — 



BANK CAPITAL OF THE SEVEEAL STATES. 



States 

Maine, . 

New Hampshire, 

Vermont, 

Massachusetts, . 

Rhode Island, . 

Connecticut, . 

New York, . 

New Jersey, 

Pennsylvania, . 

Delaware, . 

Maryland, 

District of Columbia. 

Virginia, 

North Carolina, . 

South Carolina, 

Georgia, . . 

Ohio, 

Kentucky, . 

Indiana, . 

Michigan, . 

Tennessee, 

Alabama, . 

Louisiana, . 

Mississippi, . 

Missouri, . 

Iowa, . . . 

Wisconsin, 

Texas, 

Florida, . 

Illinois, 

Arkansas, 

Totals, . 



Population 
1850. 
583,000 
318,000 
314,300 
985,000 
147,500 
372,000 

3,099,200 
480,300 

2,250,000 

90,400 

575,100 

54,000 

1,428,800 
870,500 
639,100 
950,000 

2,150,000 
988,000 

1,250,000 
397,600 

1,050,000 
800,000 
525,000 
580,000 
681,500 
175,000 
305,000 
175,000 
85,000 
850,000 
198,700 



No. of 
Banks. 

35 

22 

27 

130 

63 

42 

195 

26 

53 



Bank 

Capital. 

3,548,000 

2,205,000 

2,225,000 

38,260,000 

11,189,000 

10,073,000 

51,000,000 

3,754,900 

18,675,(100 

1,440,000 

9,072,000 

1,182,300 

9,713,000 

3,650,000 

11,431,000 

5,330,000 

7,490,000 

10,180,000 

2,083,000 

762,000 

8,165,000 

2.000,000 

13,600,000 

100.000 

1,208', 000 

200,000 

225,000 

300,000 



Bank 

Circulation. 
2,600,000 
1,750,000 
2,850,000 

17,000,000 
2,550,000 
5,200,000 

26,000,000 
3,040,000 

11,980,000 
800,000 

1 3,380,000 
1 300,000 
8,200,000 
3,600,000 

1 7,700,000 

1 4,500,000 

11,000,000 

8,000,000 

3,500,000 

780,000 

1 5,600,000 

1 3,500,000 
6.500,000 
f 100,000 
2,400,000 
1 200^00 
1 300,000 
1 300,000 



Bank Coin. 

475,000 

150,000 

127,000 

3,000,000 

262,000 

633,000 

12,000,000 

622,000 

7,200,000 

200,000 

1 2,812,000 

f 280,000 

2,527,000 

1,500,000 

12,500,000 

1 1,500,000 

2,750,000 

2,800,000 

1,197,000 

120,000 

f 1,500,000 

f 1,500,000 

8,000,000 

1 50,000 

1,500,000 

150,000 

f 100,000 

1 100,000 



23,368,000 855 8229,061,200 8143,630,000 855,460,000 



* In lieu of the table published in the English edition we insert a statement brought down to the year 
x85l, from recent documents, for which we are indebted to the Bankers' Magazine, published at Bos 
ton. — Am. Pub. 

t Estimated in part. 

442 



ALPHABETICAL INDEX 



TO THE SUBJECTS CONTAINED IN 



A PRACTICAL TREATISE ON BANKING, BY J. W. GILBART. 



The reader is reminded that he is advised to answer all references in this form without looking into 
the book, and aloud. See the Section on Index Reading. A book is described by stating its uses, how 
it is ruled, how the entries are made, and against what books it will 'mark. See page 155. 



Abolition of notes under £5. In Scotland, 330; 
in Ireland. 375. 

Abundance of money. Usually precedes a season 
of pressure, 52, 57 ; and follows it, 60. 

Acceptance-book. Describe it, 163. 

of a bill of exchange should not be 

written on the back of the bill, 30. 

Accepter or Acceptor of a bill of exchange. 
Which should we write? 10. 

Accommodation bills. In what cases a party can 
enforce payment, 36; how are they known? 
21,40. 

Account current. What is the difference between 
an account current and a cucrent account ? 164. 

, mode of opening one, 154. 

Accountant. His books should be a check upon 
the cash department, 131 ; his department, 137. 

Acts of Parliament quoted. Bank Charter Act of 
1832, 233 ; Bank Charter Act of 1844, 233, 284, 
238 ; Act of 1844 to regulate Joint-Stock Banks 
in England, 303; Joint-stock Companies Wind- 
ing-up Act, 1S43, 31 1 ; Hibernian Bank Act, 369 ; 
Act of 1845 for Regulating Banks in Ireland, 
372. 

Addresses. Desirable to indorsements of bills of 
exchange, 30. 

Administration of the office, 126. 

Administrative functions in a bank. Their distri- 
bution, 107 ; by whom ought they to be exer- 
cised? ib. 

Advances. Different ways in which advances are 
made by bankers, 2. 

on its own shares, no banking company 

allowed to do so that is formed under the new 
Act, 309. 

Advice book. Describe it, 163. 

journal. Describe it, 163. 

A?e. Expectations of life at different ages, 27; of 
directors, 104 ; different tables of, 231 ; at which 
clerks are admitted into a bank, 129. 

Agreements with the Bank of England. Provi- 
sions in the Act of 1844 respecting banks that 
had formed them, 288 ; a list of those banks, 259. 

Agricultural and Commercial Bank of Ireland, 
372; their stoppage, 55; their mode of book- 
keeping, 117. 

Allotment of shares in a new bank, 203. 

Almsgiving. Kindness to the poor need not al- 
ways take this form, 410. 

Alteration. Material, in a bill of exchange, viti- 
ates the bill, 35 ; what is a material alteration ? 
ib. 

Alterations. In deeds of settlement, how made, 
301. 



America. Money table of the United States, 197; 
the par of exchange between, and London, 196; 
laws respecting the circulation of gold coins, 197 ; 
value of sovereigns in, 193; the expenses of 
sending gold to, ib. ; trade with India, 342 ; a 
summary of all the banks in, 442; pressure in, 
in 1836, 55. 

American dollars. How turned into pounds ster- 
ling, 191. 

securities. Large sums invested in, in 

1833,56. 

Amsterdam. Mode of ascertaining the relative 
value of gold at, 221. 

Amusements of a banker, 14. 

Analogy. Arguments from, the nature of, 391. 

Anderson, J. A., general manager of the Union 
Bank of Scotland. His opinion as to bankers 
holding their reserves in bills of exchange, 46. 

Angel. The name of an old English coin ; the 
origin of the application, 223. 

Annual dinner to clerks. A good practice, 401. 

Annuities granted by the Provident Clerks' Asso- 
ciation, 229 ; on what terms they can be pur- 
chased at the savings banks, 230 ; Long Annui- 
ties, how a purchase of is entered in the banker's 
books, 191. 

Application for shares in a new bank. Form of 
one, 203. 

Apprenticeship. None required to carry on busi- 
ness as a banker, 1. 

Approaching failure. Symptons of, which a bank- 
er should observe, 27. 

April. The highest calculation of the country 
banks is in this month, 293. 294. 

Arbitration of exchanges. What is it? 194; ex- 
amples, 195, 201. 

Arrangement of counters and desks in a bank, 128. 

Art, Scriptural, of getting rich, 418. 

Artificial memory. Applied to figures, 199. 

Ashburton, Lord. His evidence respecting the 
Bank of France, 433. 

Assets and liabilities of a bank must, under the 
new Act, be published every month, 309. 

Assimilation of the currency in England and Ire- 
land, 337. 

Assistance in times of pressure. Great prudence 
necessary in granting, 59. 

Attendance, punctual, of bank clerks in the morn- 
ing, 140. 

Auditors. Under the new Act, two or more not 
being directors, must be chosen at a general 
meeting of shareholders, 309. 

August. The lowest circulation of the country 
banks is in this month, 293. 294. 



443 



A Treatise on Banking. 



Authorized issues. Of all the banks in the United 
Kingdom, 290; of each joint-stock bank in Eng- 
land, 304 ; of each bank in Scotland, 329 ; of 
each bank in Ireland, 379. 

Authors, Scotch, write "accepter," instead of 
"acceptor," of a bill of exchange, 10; "indor- 
sation" more frequently than "indorsement," 
11 ; they speak highly of their system of ex- 
changes, 323, 324; they censure the English 
banks for re-discounting their bills, 323 ; and for 
not allowing interest on current accounts, 325 ; 
and for charging commission, ib. ; and for hav- 
ing too small a paid-up capital, 320. 

Avoirdupois weight, 196. 

Babbage, Charles. His observations on the dex- 
terity of clerks, 175. 

Bacon, Lord. His observations, applied to bank- 
ing, 149. 

Bad management. The cause of the failure of 
joint-stock banks, 113. 

Balance, amount of, an indication of the circum- 
stances of the party, 27. 

, to. What is it, and how performed, 153. 

, daily. How made, 169; tends to the 

improvement of the clerks, 146 ; weekly, 170 ; 
half-yearly, 171. 

sheet. Exhibited at the general meeting 

of shareholders of joint-stock banks, 110; objec- 
tions to it, ib. 

Provision of deeds of settlement 



respecting, 301 

sheets. Form of one, 166; form of an- 
other, 173. 

Bank. The word derived from "banco," the Ita- 
lian word for "bench," 1; is it singular or plu- 
rul, 8 ; state the cases in which it is used in the 
singular, and in which it is used in the plural, 8. 

, the building. Should be in a respectable 

part of the town, 126; should be a handsome 
building, ib. 

Bank Charter of 1844. Divided the bank into two 
departments, 62 ; the issue department to issue 
£ 14,000,000 upon securities, 62 ; compelled the 
bank to issue notes against gold, at £ 3 17s. 9d. 
per ounce, ib. ; the bank may extend her issue 
under certain circumstances, ib. ; remarks on the 
Act, 62; its suspension, 63; was fairly tried, 
74, 75; is said to have secured the convertibili- 
ty of the note, 64 ; advantages supposed to have 
been expected from it, 66 ; produced abundance 
of money, 67 ; caused a low rate of interest, 
led to speculations, ib. ; its effects on the bank 
management, 69 ; does not admit of those expan 
sions of the currency that are required by the 
domestic transactions of the country, ib. ; its ef- 
fects in respect to the railway deposits, 70 ; in re 
gard to exportations of gold for specific purposes 
ib. ; in regard to a demand for gold by Scotland 
or Ireland, or the country banks of England, 70 
its effects in producing and aggravating pressure 
71 ; tends to create panic, as well as pressure 
72; deprives the Bank of England of the power 
of granting adequate assistance during a pres 
sure, 73 ; what we have yet to learn respecting 
it, 75; principles on which bankers should con- 
duct their establishments during its continuance 
76 ; gives advantage to capitalists, 81 ; effect on 
the branches of the Bank of England, 240; Gov 
eminent letter suspending it, 247; comparative 
view of its effects in Scotland, Ireland, and Eng 
land, 380. 

• of England. Original establishment, 232 

the charters of, 233 ; term of that granted ir 
1844, 233; the principles of its administration 
237; its branches, 238; principles of their ad- 
ministration, 240; the laws of the currency with 
reference to the Bank of England, ib. ; objec- 
tions to one bank of issue, 243 ; letter from the 



Government to Directors, suspending the Act of 
1844, 247 ; the periodical returns will be observed 
minutely in seasons of pressure, 60 ; bankers 
cannot depend on them for assistance in seasons 
of pressure, 79. 

, administration of the office. 

salaries to clerks, 134; holidays, 143; surety 
bonds, 136; medical attendance, 141. 

of France. See France. 

of Ireland. See Ireland. 

of Scotland. See Scotland. 

Banker. What is one? 1, 424; does not legally 
require an apprenticeship, 1 ; his qualifications, 
12 ; should be a man of wisdom rather than of 
genius, ib. ; should possess decision, 13; and 
firmness, ib. ; not of a hasty temper, ib. ; not 
swayed by a personal or constitutional prepos- 
session, ib. ; should know himself, ib. ; of pru- 
dent habits, 14 ; should know how to select suit- 
able instruments, 15; should know how to work 
through others, ib. ; should economize his own 
time, ib. ; observe a principle of order, 21 ; 
shorten his interviews, ib. ; should have a talent 
for obtaining and recording information, 16 ; 
should get a knowledge of the means and trans- 
actions of his customers, 18; should always 
have general principles, ib. ; should cultivate 
chiefly some main branches of business, 19; 
should exercise due caution in taking new ac- 
counts, ib. ; a small banker should not take 
large accounts, 19; should study the rules of dis- 
counting bills, 20; should guard against forge- 
ries, 21; should avoid dead loans, 23; even to 
rich men, ib. ; advances on deeds should only be 
made on special occasions, 25 ; bills of lading and 
dock-warrants should be avoided, 26; and so 
should policies of insurance, ib. ; he should ob- 
serve the signs of approaching failure in his cus- 
tomers and others, 27; should understand the 
" nursing " of an account, 27. 

Bankers, London. In the year 1746, were usually 
members of the company of goldsmiths, 1 ; do 
not usually grant interest on deposits, 3. See 
London. 

Banker's Clerk, The. Quotation from an excellent 
book so called, 140. 

Bankers' Magazine. Quotation from, 18 ; reasons 
for all bankers promoting its circulation among 
their officers, 148; is a record of banking and 
currency, 329. 

Banking Department of the Bank of England. 
Separated from the issue department by the Act 
of 1844, 83; its state on September 7, 1844, 84 ; 
viewed as an independent bank, it has too large a 
capital, ib ; and too large a rest, ib. ; classifica- 
tion of its deposits, 86; how far permanent, 87; 
how its deposits are affected by the foreign ex- 
changes, ib. ; its investments, ib ; whether or 
not convertible, ib. ; Government stock and an- 
nuities, 86 ; short loans, ib ; advances on defi- 
ciency bills, 89; the reserve, ib. ; how affected 
by the importations of gold, 90. The operations 
of the banking department from September, 
1844, to September, 1845, 90 ; reduced the rate of 
discount to 2£ per cent., 90; adopted the princi- 
ple of a minimum rate of discount, ib. ; compe- 
tition for discounts, ib. ; inquiry how far the 
bank rate of discount governs the market rate, 
ib. ; the true principles of banking, 91 ; tenden- 
cy of a low rate of interest to produce specula- 
tions, ib. ; the public duties of the banking de- 
partment, ib. ; administration of, from Septem- 
ber, 1845, to September, 1846, 92; various rates 
of interest, ib. ; principles on which the rate of 
interest is regulated, ib. ; railway deposits, how 
managed, 92; administration of, from September. 
1846, to September, 1847, ib. ; various rates of 
interest, ib. ; unfavorable course of exchange, 93 ; 
deficient harvest, ib. ; deficiency bills, ib. ; pres- 



444 



Alphabetical Index. 



sure in April, 93 ; restricted their discounts, ib. ; 
refused to grant loans on exchequer bill3, ib. ; 
borrowed money on consols, ib. ; censures on 
the bank directors, ib. ; practice of London 
bankers, 94 ; question as to the publication of 
the bank's reserve, ib. ; administration of, 
from September 1847, to September 1348, ib.; 
rates of interest charged, ib. ; failures of houses 
in the corn trade, andof other large commercial 
houses, 95; advances made by the bank, ib. ; 
lent stock, exchequer bills, and India bonds, 96; 
deputation from the London bankers waited on 
the Government, ib. ; letter from the Govern- 
ment suspending the Act of 1844, 96; etate of the 
bank's reserve, ib. ; decline of the pressure, 97; 
distinctive characteristics of the first four years 
of the operations of the banking department, 93 ; 
importance of this review, ib. 

Bankrupt. The word derived from two Italian 
words, which signify a broken bench, 2; joint- 
stock banks are subject to the laws of bankrupt- 
cy, 310; those of Scotland and Ireland excepted, 
by 9 & 10 Vic. cap. 85, 3S1. 

Bankrupts. If all the parlies to a bill are bank- 
rupts, the holder may prove for the full amount 
under each commission, 34. 

, fraudulent. In no case should bankers 

retake their accounts, 396. 

Banks. How divided, 1; the business of. ib. ; the 
disposable means of, 2 ; the expenses of, ib. 

Belfast, banks in, 371; table of their capital, &c, 
ib. 

Banking Company. Its origin, 371 ; its 

branches, ib. 

Bell. Gavin Mason, author of the Philosophy of 
Jnint-stock Banking. Quotations from, on the 
qualifications of directors, 104; ditto of mana- 
gers. 107. 

Bell Robert, manager of the City of Glasgow Bank 
in Edinburgh. His first letter to the author, 320; 
his second letter, 325. 

Benevolence, the duties of. Inculcated by Moses, 
403 ; by Job, 403 ; by Solomon, ib. ; in the New 
Testament, ib ; the rule by which it should be 
exercised, ib. ; should not be indiscriminate, 409. 

Bequest. Form of one to the Provident Clerk's 
Association, 229. 

Bible, a code of laws, not a book of adjudged cases, 
395 ; its political economy, 418. See Scripture. 

Bill-brokers. Bankers' loans to, 43 ; failure of, ib. 

■ people who discount with, when money 

is abundant and cheap, return to their banker in 
seasons of pressure, 59. 

banks should not depend on them for 



assistance in seasons of pressure, 79, 

Bill committee, 302. 

journal. Describe it, 159. 

ledger. Describe it, 159. 

register. Describe it, 159. 

Bills offered for discount. Various classes of, 20 ; 
topics of inquiry about them, 21. 

presented for payment by bankers. 5. 

if a banker misapplies bills lodged by his cus- 
tomer, who loses ? 36. 

of exchange. What is one? 29: the form. 

ib. ; who are the parties to one? 30; how are 
they divided ? 20 ; what is a set of bills ? 31 ; 
what stamps are required ? 33 ; when must a bill 
be presented ? 32; when must a notice of dishon- 
or be given ? (See Notice) ; formed a large part of 
the circulation of Lancashire. 40; forms of for- 
eign bills, 39: some bankers hold their reserves 
in, 46. 

of lading. Not proper security on which a 

banker should make advances, 26. 

Bishop, the admonitions of, have less effect upon 
some people than the frown of a banker, 7. 

Blair, Alexander, treasurer of the Bank of Scotland. 
Organized the Edinburgh clearing-house, 324 ; 



letter addressed to, by Mr. Kinnear, on exchange 
companies, 349. 

Boards of directors. Govern the joint-stock banks, 
103, 301 ; should be composed of members of va- 
rious ages, 104; should treat the manager with 
kindness and confidence, 105 ; should guard 
against the undue ascendency of individual mem- 
bers, 122, 382 ; should not be guided too much by 
the applauses or admonitions of the shareholders, 
122; should be well paid for their services, 125 ; 
duties of, towards the servants of the bank, 40f. 
<See Directors. 

Boating, a serviceable recreation for bank clerks. 
141. 

Boi.ds of security. Form of, given by managers, 
205 ; and by clerks, 206 ; cash credit bonds, 210; 
of the Guarantee Society, 224. 

Book-keeping. The importance of, 117; banks 
should estimate their losses, 113 ; should keep an 
account of the bills re-discounted, ib. ; each branch 
should have a good system of, 113. 

, banking. A system of, 150; the 

horizontal, 176 ; comparison between commercial 
and banking, 130; books connected with the 
clearing, 253. 

Branches. Of the Bank of England, 239 : of the 
Banks of Scotland, 315; of the banks in Ireland, 
353, 366, 371 ; of the country, private, and joint- 
stock banks, 291, 321 ; of the joint-stock banks in 
London, 279. 

of the Bank of England at Manchester and 



Liverpool diminished the bill circulation of Lan- 
cashire, 40 ; the circulation of, in nolea and 
drafts, 239. 

of joint-stock banks. Their advantages, 

103 ; give facilities for the transmission of money, 
ib. ; are opened in places that coulu not support 
an independent bank, ib. ; promote the distribu- 
tion of capital, 109 ; secure a. better system of 
management, ib. ; require a proportionate paid- 
up capital, ib. ; require competent managers, 
and a good system of discipline, 110; comparison 
between branch banks and independent banks, 
ib ; rules for governing, 118; of the London and 
Westminster Bank, 266. 

Branch department, what books are kept there, 164. 

Brokers' bills. First class bills so called, are dis- 
counted by bankers, 45-48. 

Bullion, Thomas. A signature to a series of letters 
to a branch manager in the Bankers' Magazine, 
13. 

Business habits. What are they ? 147. 

Calculating boys. Principles of their operations, 
199. 

Calculations, banking, with reference to. The dis- 
count of bills, 184; interest at 6 per cent., 184; 
interest at 5 per cent., 186 : use of interest tables, 
16. ; interest on current accounts, 187; composi- 
tion for stamp duties, 183; time that notes re- 
main in circulation, 16. ; to calculate commis- 
sions, 189; dividends on stock, ib ; long annui- 
ties, 191 ; stockbrokers' charges, ib. ; American 
dollars and French rentes, 191 ; foreign bills of 
exchange, 192; arbitration of exchanges. 194: 
the value of gold in different countries, 195 ; par 
of exchange, 196; money table of the United 
States. 197": value of sovereigns in America, 198; 
money table for India, ib. ; to ascertain how 
many persons enter a bank in the course of a 
day, 199 ; calculating boys, ib. ; systems of arti- 
ficial memory, 16. ; questions for calculation, 201. 

Call over. What is it, and how should it be per- 
formed? 153, 175. 

Calmness. A banker should always maintain a 
feeling of, 16; should observe it in his reproofs, 
150. 

Cancelled. How is a check cancelled, and when* 
154. 



445 



A Treatise on Banking. 



Capital. Banks should have a sufficient amount of, 
to secure self-dependence, 80. 

- paid-up, of a joint-stock bank, 100 ; evils 
of too small a capital, ib. ; evils of too much cap- 
ital, 100, 264 ; proportion of capital to liabilities, 
101 ; modes of increasing capital, ib. ; advan- 
tages of a nominal capital, 101 ; provisions of 
the new Act with reference to capital, 102, 312; 
the capital of all the joint-stock banks in Eng- 
land, 305. 

of each of the joint-stock banks in Lon- 
don, 280 ; of each in the country, 302; of each in 
Scotland, 315 ; of the banks in Ireland. See Ire- 
land. 

Capitalists. Advantages they derive from banks, 
2, 337. 

Case of need. What is it ? 30. 

Cash. Origin of the word, 223. 

account with branches. How is it kept, 169. 

book. Describe it ? 157. 

credits. What are they ? 332 ; wherein do 

they differ from overdrawn accounts ? 333 ; utility 
of, 333 - 335 ; wherein they differ from discounts, 
333. 

not adopted by the London and 

Westminster Bank, 265; form of bond, 210 ; di- 
minished in Scotland by the Act of 1835, 328; 
their advantages, 333 ; diminished in Ireland by 
the runs for gold, 380. 

credit bond, forms of, 210. 

department, books used in the, 155. 

Cashier's department, 137; his qualifications, ib. ; 
his deficiencies, 143 ; checks on their accuracy, 
131. 

Cast, to, or cast-up. What is it? 155; how to do 
it well, 152, 175. 

Catechism. An Index may be used as one, 431. 

Causes. Of the failure of joint-stock banks, 113 ; 
taking over the unsound business of private 
banks, ib. ; making advances on dead security, 
114 ; granting accommodation to parties engaged 
in speculative undertakings, 116 ; a want of sys- 
tem and discipline in conducting its affairs, 117; 
making no provision against contingencies, 119 ; 
defects in the constitution of the bank, the ap- 
pointment of incompetent persons, or an unwise 
distribution of the administrative functions, 120; 
injudicious proceedings of meetings of proprie- 
tors, 122. 

Causes of the prosperity of the Provincial Bank of 
Ireland, 366. 

Certificates of shares, forms of, 203-216. 

Chain rule. What is it? 194. 

Change, small, obtained from banks, 4. 

Character, personal, of parties. An element in a 
banker's calculation as to the credit they are en- 
titled to, 18. 

Chartered banks, 354 ; charter of the Bank of Eng- 
land, 232 ; of the Bank of Ireland, 355 ; of banks 
in Scotland, 312-319; of the new joint-stock 
banks in England, 309, 382. 

Check-ledger. Describe it, 180 ; advantages of, 
182. 

Checks upon the issues of country banks, 296. 

Cheque. Less trouble to write one than to count 
out the money, 5 ; useful in proving payments, 
6 ; must not be drawn on a bank more than fif- 
teen miles distant, 32 ; should we write " cheque " 
or " check," 12. 

Cheques. Are multiplied by the business of the 
Stock Exchange, 255 ; utility of crossing, 258. 

Chief accountant. His duties, 137. 

clerk. His desk, where to be placed, 138 ; 

his qualifications, 128 ; his duties, ib. ; should not 
have much manual labor, 144 ; his office a good 
training for a manager, 148 ; his duties often per- 
formed by the banker, 149. 

Circular notes. Form of those issued by the Lon- 
don and Westminster Bank, 218. 



Circulation. Different meanings of the word, 242 ; 
the Parliamentary meaning, 379. 

Cities. Analogy between cities and public compa- 
nies, 392. 

Class of society from which bank clerks are usually 
taken, 129. 

Classes of bills offered to a banker for discount, 20. 

Classification of accounts according to the profes- 
sion of the parties, 16. 

Clay, Sir William. His motion respecting joint- 
stock banks, 53 ; his questions to the Governor 
of the Bank respecting the clearing, 283. 

Clearing. Between the London bankers, 252 ; in- 
crease of, by the business of the Stock Exchange, 
254 ; a clearing balance-sheet, 256 ; amount of 
transactions by each banker, ib. ; amount of in 
each month, 257; books connected with, 253; 
joint-stock banks excluded from, 281. 

between the Bank of England and the 



London bankers, 257. 

between the banks at Newcastle-upon- 



The presentment of a bill for pay- 



Tyne, 258. 

house. 



ment there is a legal presentment, 36 ; operations 
of the, described, 252. 

Clerks. Their selection and appointment, 129 ; dis- 
tribution of their duties, 131 ; amount of their 
salaries, 132; their securities, 135; the system 
of promotion, 136 ; the rules of discipline, 139 ; 
their holidays, 141 ; training of clerks for higher 
offices, 144; chief clerk, where he should be 
placed, 128 ; his duties, 139. 

Coin. Origin of the word, 222 ; the word " money " 
applied to, 156. 

Collective responsibility of nations, 390 ; families, 
391 ; cities, 392 ; public companies, 388. 

Commercial Bank of London. Its formation, capi- 
tal, profits, dividends, and surplus funds, 275 ; its 
prospectus, 277. 

— Exchange Company at Glasgow, 



350. 

Commission accounts taken by the London and 
Westminster Bank, 265, 424. 

Commissions. How to calculate, 189. 

Committees. Of the Lords and Commons, upon 
the abolition of small notes in Scotland and Ire- 
land, in 1826, extracts from their reports, 312, 
335, 375. 

Committee of the House of Commons, on the Bank 
of England Charter, in 1832, 67 ; extract from 
the evidence of Mr. Horsley Palmer, 53; ditto, 
Mr. George Glyn, 251. 

of the House of Commons, on joint- 



stock banks, in 1836, 54 ; extracts from their re- 
port,. 301. 

of the House of Commons, on banks of 



issue, in 1840, extracts from the author's evidence 
before them, 240, 243, 294. 

of the Lords and Commons, appointed 



446 



to inquire into the causes of the distress of 1847, 
64; of the. House of Commons, reported in favor 
of the continuance of the Act of 1844, 65; of the 
House of Lords, extracts from their report as to 
the cause of the distress of 1847, 64. 

Compensation. By the Act of 1844, to banks that 
issued Bank of England notes, 288. 

Composition for stamp-duty on notes. How calcu- 
lated, 188. 

Consols. The best kind of Government securities 
for bankers to hold, 44 ; should hold other stock 
too, 45. 

Constitutional failings. A banker should guard 
against, 13. 

Convertibility of the bank note. What it means, 
64 ; the Act of 1844 said to have secured it, ib. 

Copland, Charles, manager of the Royal Bank of 
Ireland, formerly a manager in the Provincial 
Bank of Ireland, 370. 

Copper. Its specific gravity, how coined, 196. 



Alphabetical Index. 



Corn merchants. Banks have made great losses 
through advances to, 116. 

Correlative terms. Drawer drawee, payer payee, 
mortgager mortgagee, indorser indorsee, discount- 
er discountee, noder nodee, 30. 

Cotton, William, governor of the Bank of England 
in 1844. His evidence as to discounting for 
country banks of issue, 291. 

Coulthart's Interest Tables, 188. 

Counterfeit coin. Less through banking, 5. 

Counters. Arrangement of, in a bank, 128 ; should 
at all times be properly appointed, 128. 

Country banker. How affected in seasons of pres- 
sure, 58 ; has greater facilities in obtaining in- 
formation than London bankers, 18. 

Country bankers. Advance money on a deposit of 
deeds, 26 ; make advances by way of overdraft, 
23. 

banks. Circulation of, restricted by the 

Act of 1844, 286 ; opinions of the joint-stock 
banks respecting the country circulation, 357. 

■ department in a bank, 162 ; what books 



are kept in the, 163 

■ private banks, 234 ; the principles of their 



administration, ib. ; the provisions of the Act of 
1844, ib. ; the regulations imposed on such as 
are bank3 of issue by the Act of 1844, ib. ; the 
laws of the currency with reference to the coun- 
try banks, 292 ; examination of the author on the 
subject by Sir Robert Peel, 294 ; the clearing be- 
tween country banks, 297. 

Courtesy. Of managers, 106; of clerks, 400; of 
shareholders, ib. ; of directors, 402 ; of annual 
reports, 400. 

Credit-book. Describe it, 163. 

Credits on agents. How entered in the books, 167. 

Cross firing. What is it ? 27. 

Crossing of cheques. The uses of, 258. 

Currency and banking. "A Review of some of 
the Principles and Plans that have recently en- 
gaged public attention with reference to the Ad- 
ministration of the Currency," a quotation from. 
in reference to the principle of the Act of 1S44, 
62. 

Customers. A banker should get a knowledge of 
his, 17. 

books. Should be correctly and neatly 

written up, 143; are checked against the ledger, 
ib. 

Cutbili, Alfred R., manager of the Commercial 
Bank of London, previously sub-manager of the 
London and County Bank, 275. 

Daily balance. Describe it, 146. 169. 

Danish bill of exchange. The form of one, 39. 

Dates. Bank of England commenced 1694, present 
charter to expire at the expiration of twelve 
months' notice to be given after the 1st day of 
August, 1355, 237. 

The London and Westminster Bank, opened 

on the Wtk March, 1834, 259; the London Joint- 
stock Bank on the 2lst November, 1836. 270; the 
Union Bank of London, on the 4th February, 

1839, 274 ; the Commercial Bank of London in 

1840, 275 ; the London and County Bank, in 
September, 1836, 277. 

of the establishment of all the joint-stock 

banks in England, 302 ; of those that have ceased 
305, 306. 

of the origin of the banks in Scotland, 315 ; 

of the provisions of the Act of 1845 in Scotland, 
313; in Ireland, 352. 

The Bank of Ireland commenced the 25lh 

June, 1733; Provincial Bank in 1825; National 
Bank in 1834; Hibernian Bank in 1324; Royal 
Bank in 1336; Northern Bank in 1325: Belfast 
Banking Company in 1827 ; Ulster Bank in 
1837. See these banks. 

■ Act of 1344 was suspended on the 25th Oc- 



tober, 1847, 247 ; suspension removed on the 23d 
November, 1847, 243. 

David. His gratitude and humility, 404. 

Day-book. Describe it, 157. 

Days. The number of, that Bank of England notes, 
of various denominations, remain in circulation, 
189. 

Dead loans. How they arise, 20 ; cannot be called 
up in seasons of pressure, 58. 

security. Some banks have lost money by 

making advances on, 23, 114. 

Debt, National. The amount of, 51. 

Decision. Very necessary in a banker, 13, 107. 

Declarations of secrecy. Form of, signed by direc- 
tors and officers of joint-stock banks, 207. 

Deed of settlement, 205 ; provisions of, with re- 
gard to altering the regulations of the company, 
301 ; as to the mode of conducting the business 
of banking, t'6. ; as to the degree of publicity to 
be given to the proceedings, ib. ; as to the terms 
on which the company is to be dissolved, 302 ; 
provisions of, under the new Act, 309. 

of transfer. Form of, 216. 

Deeds lodged as security for loans. Rules to be ob- 
served respecting, 25. 

Defects of character in a banker, 13. 

Deficiencies of cashiers.' How provided for, 143. 

Department of tellers, 136; of cashiers, 137; of ao 
countanta, ib. 

Deposit receipts. Form of, 213 ; use of, 429. 

Deposit-receipt-book. Describe it, 158. 

Deposits in a bank. Are reduced in seasons of 
pressure, 53 ; the system of, in Scotland, 336. 

■ Amount of, in each of the joint-stock 

banks of London, 230. 

Desks. Arrangement of, in a bank, 128. 

Difference between the pressures of 1836 and 1839, 
56. 

Diligence in business, a source of wealth, 417. 

Direction, or notice, left by a bank clerk when a 
bill is not paid on presentation, 32. 

Director. Should be a man enjoying public confi- 
dence, 102 ; should possess a knowledge of com- 
mercial business, 103 ; should be a man of strict 
integrity, t'6.; a man of influence and respecta- 
bility, 16. ; in good pecuniary circumstances, 
104 ; should have time to give attention to the 
bank, ib. 

Directors. At first they had no banking experience, 
121 ; were chosen because out of business, ib. ; 
evil of managing directors, 122, 348; and secret 
committees. 122 ; provisions of the new Act re- 
specting, 309, 382. 

of the Bank of England. Their number 



and qualifications, 83; have always been liberal 
towards the clerks of the establishment, 136. 
Ireland, 356, 332. 



Discipline. Rules of. in a bank, 113, 139. 

Discount of bills. Mode of calculating, 184. 

Discount balance book. Describe it, 16. 

journal. Describe it, 159. 

ledger. Describe it, 159. 

register. Describe it, 159 ; abolition of, 

179. 

Discounting bills. Lar?e part of a banker's busi- 
ness, 20 ; classes of bills offered for discount, t'6. ; 
rules of, 21 ; points of examination with refer- 
ence to bills discounted, ib., 23. 

Discrimination of character. A necessary qualifi- 
cation in a banker, 15. 

Dissolution of a banking company. How made, 

Dividends, high. Bankers should not expect them 
under the Act of 1844. 80. 

— rate of. paid by the joint-stock banks of 

London, 280; by the country joint-stock banks, 
302; paid by each bank in Scotland, 315. 
How to calculate, 189. 



Division of labor. Necessary in a bank, 131, 174 



447 



A Treatise on Banking. 



Divine Character. A lovely exhibition of the, in 
the words, " He hath pleasure in the prosperity 
of his servants," 402. 

Dock warrants. A banker should not make advan- 
ces on them, except occasionally for the accom- 
modation of a customer, 26. 

Documents. Banking, 202. Documents connect- 
ed with the formation of a joint-stock bank, 
ib. ; the deed of settlement, 205 ; bonds of secu- 
rity for the officers, ib. ; declarations of secrecy, 
207; letters of guarantee, 208 ; letters on lodging 
deeds or other securities, 209 ; memorandum of 
agreement with reference to deeds, ib. ; cash 
credit bond, 210 ; letters of credit, 212 ; deposit 
receipts, 213 ; requisition notes, ib. ; letter call- 
ing a general meeting, 215; special contracts, 
216 ; notices of calls, ib. ; certificates of shares, 
ib. ; deed of transfer, 218 ; circular notes issued 
by the London and Westminster bank, ib. ; a ta- 
ble showing the relative value of gold in London 
and Paris, Hamburgh and Amsterdam, 221; a 
table of English money reduced into foreign, 222 ; 
bond of the Guarantee Society, 224; Provident 
Clerks' Benevolent Fund, 226 ; terms of savings 
bank annuities, 230; comparative view of the 
expectation of life, 231. 

Domine Dirige Nos. The motto of the City of 
London, 404. 

Double entry, book-keeping by. Describe it, 181. 

Draught, or draft, which should we write ? 11. 

Dunedin Bank. Extract from their prospectus, 321. 

Dutch bill of exchange. The form of one, 39. 

coin, English money reduced into, 222. 

Duties of clerks. The distribution of, 132. 

of public companies, 393. 1. Duties of pat- 
riotism, 393. — 2. Duties of social relationship, 
395. — 3. Duties of religion, 404. — 4. Duties of 
benevolence, 407. 

East India bonds. Bankers' investments in, 45. 

Economy, domestic. Promoted by banking, 6. 

should not be too strictly regarded by 

public companies. In their expenditure, 394 ; in 
their buildings, 126; in their salaries, 124; in 
their hospitality, 400; in their pensions, 401. 

Education. The duty of educating the poor bind- 
ing on public companies, 406; ways in which 
the duty should be discharged, 407. 

Education. A religious one, a strong recommenda- 
tion in a candidate for the office of bank clerk, 
130. 

effect on the population, 410 ; advantage 

to banks of having educated servants, 412 ; many 
public companies owe their existence to, 411. 

English money. Reduced into Prussian, Frankfort, 
Dutch, and French coin, 222. 

Employment previous. To be inquired into before 
appointment as a bank clerk, 130. 

Envy. The prosperity of the wicked should not be 
envied, 421. 

Equivalent numbers. Great facilities to calculation 
by substituting, 199. 

Evi] speaking should not be practised between pub- 
lic companies, 397. 

Examination of the author by Sir Robert Peel, on 
the circulation of country banks, 294. 

Example. The effects of, 395. 

Exchange banks and companies, 346 ; letter of the 
author respecting, ib. ; extract from Mr. Kin- 
near's pamphlet respecting, 349 ; those estab- 
lished in Scotland, 350 

Exchanges. Between bankers in London, 252; be- 
tween bankers in the country, 297; between 
bankers in Scotland, 323, 344 ; in Ireland, 383 ; 
in Newcastle-on-Tyne, 258. See " Clearing." 

foreign, unfavorable, usually precedes 

a season of pressure, 52. See Foreign. 

Executor. Should open a separate account at a 



bank, 423. 



Exchequer bills. A banker may have to sell or 
borrow on them in seasons of pressure, 58 ; loans 
on, refused by the bank in April, 1847, 70 ; some 
banks keep their reserves in, 45 ; Bank of Eng- 
land did so, but have changed for stock, 45. 

Expectation of life. A short mode of ascertaining, 
27. 

Expenditure. A record of, preserved by keeping a 
banker, 6 ; enumerate the accounts that are 
placed under this head in the general ledger, 166 ; 
how entered in the books, 169. 

Expenses of a bank. What are they ? 2, 166. 

Failure. When a banker failed in Italy his bench 
was broken by the populace, 1 ; signs of ap- 
proaching failure, 27. 

Failures of joint-stock banks. Causes of, 113; 
number of, 306. 

False dealing forbidden, 395. 

Families. Analogy between families and public 
companies, 391 ; instances of families being re- 
warded or punished for their actions, 392. 

Farthing. Origin of the word, 224. 

Figures. Should be made plain, 151. 

Firmness. Want of, a defect in a banker, 13. 

Fluctuations. Great in the amount of the circula- 
tion, the rate of interest, and the price of the 
public securities, during 1847, 66 ; their effect on 
trade, 82. 

Foreign bills of exchange may be accepted verbally, 
31 ; always protested for non-acceptance or non- 
payment, 32; usually drawn in sets, 31; often 
drawn at a usance, 31 ; bills drawn from Scotland 
or Ireland are considered as foreign, ib. ; form oi 
in several languages, 39. 

Foreign countries, bills on. How they arise, 192: 
how calculated, 194 ; arbitration of exchanges, 
194. 

exchanges. Country bankers do not reg- 



ulate their issues by, 295. 

may be adjusted by other 

means than the transmission of gold, 66. 

Forgeries. Various kinds of, 21 ; how to guard 
against, 22; in signing deeds, ib. 

Form. Of a bill of exchange, 29 ; of a promissory 
note, 30 ; of a cheque, 32. 

Foster, B. F. His "Book-keeping" quoted. 15C, 
176. 

France, Bank of. Formed in 1803, 434 ; is gov- 
erned by a governor, two sub-governors, three 
receivers-general, three censors, and twelve ordi- 
nary directors, to. ; how are they paid, ib. ; the 
rate of interest charged, 435 ; principles of man- 
agement, ib. ; their circulation of notes, 436; 
branches, ib. ; connection with the government, 
438; its condition, 439. 

Francis, John. His " History of the Bank of Eng- 
land" quoted, 175. 

Frankfort coin. English money reduced into, 222. 

Free-trade in banking does not produce numerous 
banks, but the reverse, 318. • 

French. Form of a bill of exchange drawn in, 39 

coin. English money reduced into, 222. 

stock. How calculated, 191. 



Gamblers. Bankers should discountenance, 7. 
Gambling in the funds or in shares. Bankers' cleiks 

should not do so, 144. 
Gardening. A highly beneficial recreation for bank 

clerks, 141. 
General account of cash. How kept in the books, 



balance book. Describe it, 16, 166. 

ledger. Describe this most important 

book, 165 ; how are the accounts classified ? 166 ; 

how is it posted from the day-book? 165, 181 ; is 

it kept by double entry ? 181. 

principles. A banker should always have 



448 



them, 18. 



Alphabetical Index. 



Gentlemanly manners. Clerks should observe to- 
wards each other, 128. 

German bill. The form of one, 39. 

Gilbart, James William, the author. Was mana- 
ger of the Provincial Bank of Ireland, at Water- 
ford, 263; extract from his History and Princi- 
ples of Banking, 20; extracts from his Inquiry 
into the Causes of the Pressure on the Money 
Market during the year 1839, 52, 72, 81 ; extracts 
from his Currency and Banking, reprinted from 
the Westminster Review, 62, 318, 328 ; extracts 
from his letters of Nehemiah. 74, 76, 288 ; extracts 
from his Laws of the Currency, published in the 
Foreign and Colonial Review, 241, 292, 327, 
372 ■ extracts from his History of Banking in 
America, 22, 55, 72, 99, 197 ; extracts from his 
History of Banking in Ireland, 354,353; extracts 
from his Lectures on Ancient Commerce, 14, 147, 
151 ; extracts from his Evidence before a Com- 
mittee of the House of Commons, respecting one 
bank of issue, 243 ; ditto, ditto, respecting the 
circulation of country banks, 294; ditto, ditto, 
respecting the circulation of Ireland, 373. 

Gladstone, J., m. p. His evidence upon the bill cir- 
culation in Lancashire, 40. 

Glasgow Exchange Company, 351. 

Glyn, George Carr, m. p. His evidence respecting 
the London bankers in 1832, 251 ; his questions 
respecting the clearing, 258; his anticipations 
respecting the issues of the Bank of England, 67. 

Gold. How weighed, 195; how coined, 196; its 
specific gravity, ib. ; the amount in circula- 
tion, ib. 

Goldsmiths, Company of. Formerly most bankers 
belonged to that company, 1. 

Goodness. Always associated with some degree of 
wisdom, 131. 

Government securities. The Bank of England pre- 
fer holding stock to exchequer bills, 45 ; amount 
held by them in September, 1344, 34; and at oth- 
er times. 97; bankers will probably hold a less 
amount from their experience of the Act of 1344, 
77 ; proper for bankers to hold their reserves in, 
44, 48. 

Grace. Three days of, allowed on bills of exchange, 
30. 

Grammar. Is the word bank a singular or a plural 
noun ? 8 ; should we write accepter, or acceptor? 
10; indorse, or endorse? 11 ; indorsement, or in- 
dorsation? ib. ; presentment, or presentation? 
12 ; draught, or draft ? ib. ; check, or cheque ? ib. 

Gratitude, debt of. Due from public companies to 
the cause of mental cultivation, 411. 

Grey, Dr. His system of artificial memory, 200. 

Groat. Origin of the word, 223. 

Grudging. Hospitality should be exercised with- 
out". 400; and also benevolence, 410; 

Guarantee Societies, 135 ; form of their bond, 224. 

Fund. See Surplus Fund. 

Guinea. Why a gold coin was so called, 223. 

Gurney, Samuel. His opinion as to bankers hold- 
ing their reserves in bills of exchange, 47. 

Makits. How formed, 430; imprudent, voluptu- 
ousness, drunkenness, gluttony, idleness, sloth, 
gay company, improvidence, gossiping, tend to 
poverty, 417. 

of business. What are they ? 146. 

Half-yearly balance. What is then done? 171. 

book. What does it contain ? 



171. 



sheet. Describe it, 173. 



Hamburg. Way of estimating the relative value 
of gold in, 196. 

Happiness. Outward circumstances no certain in- 
dex of, 413. 

Head-office. List of all the joint-stock banks in 
England, arranged alphabetically according to 
the head-office, 302. 



Health. A banker should pay regard to his own, 
especially in seasons of pressure, 61 ; means of 
promoting the health of clerks, 127, 128, 140; 
holidays have a tendency to promote, 142 ; great 
inconvenience from the bad health of clerks, 140 ; 
conduct of the Bank of England with regard to 
the health of their clerks, 141. 

Hewat, Thomas. The secretary of the Provincial 
Bank of Ireland, 365. 

Hibernian Bank, 369 ; its origin, ib. ; obtained an 
Act to sue and be sued by its registered officer, 
ib. ; the last statement of its affairs, 370. 

High salaries to clerks. Not advisable at first, 134. 

History and Principles of Banking. Quoted with 
reference to bills offered for discount, 20. 

of banking in America. Quoted with ref- 
erence to the re-discounting of bills, 22; with 
reference to pressures, 55, 72 ; with reference to 
joint-stock banks, 99 ; with reference to the coins 
of the United States, 197. 

Hoarding. The effect of panic, 72; the extent of 
in 1347, 73. 

Holidays. All clerks should have, 141 ; promote 
their health and mental energy, 142; a means of 
improving the clerks, ib., 145; a security for 
their honesty, 142 ; rules of the Bank of England 
with regard to, 143. 

Honiton Bank. Neglectful in book-keeping, 117. 

Honor Deo. The motto of the Mercers' Company. 
405. 

Honor. Acceptance for honor; what is it? 31. 

Horizontal system of book-keeping. Describe it, 
176 ; what are its advantages ? 173. 

Hospitality. Cases in which public companies 
should exercise it, 401. 

Ignorance. To remove the ignorance of the poor 
is as much a duty as to relieve their distress, 410. 

Illegal considerations for a bill of exchange. Such 
bills cannot be enforced by the drawers, but may 
by third parties who had no knowledge of the 
illegal consideration, 33. 

Illness of Clerks. Inconveniences of, 140; means 
of preventing, ib. ; conduct of the Bank of Eng- 
land with respect to, 141 ; why should not banks 
engage medical men to attend to? 141. 

Impartial system of promotion. Tends to the im- 
provement of the clerks, 145. 

Improvements in book-keeping, 174; what is their 
object? 176. 

Inconvertible security. A banker should not make 
advances on. 23. 

Independence of mind essential to the development 
of the intellectual character, 149. 

Index. Uses of, — is a reference to what we have 
read, — will remind us of what we have forgot- 
ten, — frequent perusal of, will impress the book 
on our memory, — will present in one view all 
that is said on the same subject, — a means of 
self examination, — a catechism, — a syllabus, 
— points out those topics on which we may de- 
sire information,— enlivens the attention, 430,431. 

India. Money table for, 193; exchange with, ib. ; 
how regulated by the East India Company, ib. ; 
how exchange operations are conducted there, 
341 ; form of bills remitted thither by the Scot- 
tish banks, 343 ; the Bank of England issue bank 
post bills in sets, at 60 days' sight, for remittance 
thither, 344. 

Indorsement of a bill of exchange. May be either 
general or special. 29 ; where it should be placed, 
30; should we write indorsement or indorsation ? 
11 ; indorse or endorse, ib. 

Industrious classes. System of deposits useful to 
337, 339. 

Information. Kind of, given by bankers to each 
other, 6 ; given by a banker to his customer, 7 ; 
means of obtaining and recording, 16; country 
bankers have great facilities in obtaining, 18. 



449 



A Treatise on Banking. 



Information book. Describe its importance, 17. 

Innocent people suffer for the faults of those with 
whom they are socially connected, 392. 

Inquiry into the Causes of the Pressure on the 
Money Market during the year 1839. Quotations 
from, 52, 57, 72, 81. 

Inspection-book. Describe it, 16. 

Instruments, suitable. A banker should know how 
to choose, 15. 

Insurance companies. Their increase owing to the 
increased attention paid to vital statistics, 410; 
should be pitiful when policies become forfeited 
through misfortune, 400; should not rejoice at 
the misfortunes of rival companies, 398 ; their 
policies not good security for bankers' advances, 
26; the United Guarantee and Life Assurance 
Company, 135; the Provident Clerks' Insurance 
Company, 226. 

Interest. A low rate of, usually precedes a season 
of pressure, 53, 81. 

how to calculate, 184. 



more than 5 per cent, cannot be charged 

where the security is real property, 26. 

on deposits. Allowed by bankers, 3 ; not 



generally by London bankers, ib. ; advantages of, 
in Scotland, 337. 

will advance in seasons of 



pressure. 58, 60. 
tables. Reader's, 186 ; Gilman's, 



Coulthard's, ib, 

• what is the practice of the London private 

bankers with regard to ? 3, 251 ; the London joint- 
stock banks? 251, 265, 269, 271, 272, 278; the 
country banks ? 3, 345 ; the banks of Scotland ? 3, 
325, 337, 344 ; the banks of Ireland ? 363, 381 ; the 
Bank of England ? 237, 238 ; what rates has the 
Bank of England charged at different times ? 56, 
90, 92, 94, 98; what effects have her changes 
upon the market rate of interest, 68, 93; what 
connection is there between rates of interest and 
seasons of speculation or pressure, 53, 60, 66, 69 ; 
how it checks the excessive issue of notes, 296, 
325 ; what effects are produced on, by the Act of 
1844 ? 69. 77, 91 ; what are the various modes of 
calculating, 154-183; what rates are charged by 
the Bank" of France? 436; and the Banks in 
America, 437. 

Interviews between a banker and his customers 
should be short, 16. 

Investments. Enumerate the accounts that are 
placed under this head in the general ledger, 166; 
how entered in the books, 167 ; in foreign stocks, 
how far allowed. 301. 

■ speculative. Usually precede a sea- 
son of pressure, 53, 81. 

Ireland. Bills drawn from, regarded as foreign, 31. 

■ banks of, 352 ; provisions of the Act of 

1845, ib. ; the Bank of Ireland, 354 ; the Provin- 
cial Bank of Ireland. 358 ; the National Bank of 
Ireland. 367 ; the Hibernian Bank, 369 ; the Roy- 
al Bank of Ireland, 370; the private banks in 
Dublin, 354 ; the Northern, Belfast, and Ulster 
Banks, at Belfast, 371 ; the Tipperary Joint- 
stock Bank, 372 ; the laws of the Currency in 
Ireland, ib ; the abolition of notes under £ 5, 
375 ; respective bearings of the Acts of 1844 and 
1845 (7 and 8 Vict. cap. 32 ; 7 and 8 Vict. cap. 
113, and 9 and 10 Vict., cap. 85) upon the banks 
of England, Scotland, and Ireland, 380; settle- 
ment of the exchanges in Dublin, 383. 

Isle of Man. Two joint-stock banks have failed 
there, 307. 

Isle of Wight. A joint-stock bank there took 
the business of a private bank, 114; after- 
wards merged in the National Provincial Bank, 
307. 

Issue Department of the Bank of England. Is re- 
quired to give notes for gold, at the rate of £ 3 
17s. 9d. per ounce, 62; not to issue more than 



£ 14,000,000 against securities from the thirty- 
first day of August, 1844, 234. 
Issue Act of 1844. No bank in any part of the 
United Kingdom, who did not issue notes on the 
sixth day of May, 1844, shall have the power of 
issuing notes, 284 ; the amount of notes a country 
bank in England may issue must not exceed the 
average amount in circulation during the twelve 
weeks ending the twenty-seventh day of April, 
1844, 285 ; upon an average of four weeks, no 
banksr must have more than the above amount 
in circulation from the tenth day of October. 
1844,286. 

No bank can issue notes in Scotland or 



Ireland, who did not issue on the first day of 
May, 1845, 313 ; the fixed issue of each bank is 
the average amount it had in circulation during 
the year ending the first day of May, 1845, ib. ; 
upon the average of four weeks, no bank to have 
in circulation a larger amount than this fixed 
issue, after the sixth day of December, 1845, ib. 
Italian bill of exchange. The form of one, 39. 



Jackson, John Stan way. Manager of the Bank of 
Mona, 308. 

James, Paul Moon. His opinion as to bankers 
holding their reserves in bills of exchange, 46. 

Job. His controversy with his friends, 412; his 
reflections, when in distress, on his previous 
conduct towards his servants, 402 ; his kindness 
to the poor, 413. 

Joint-stock banks. Committee of the House of 
Commons respecting, 53 ; their report, 54 ; 
points in which they differ from private banks, 
99; their paid-up capital, 100; are governed by 
a board of directors, 102 ; have a chief officer, 
called a manager, 104; distribution of their ad- 
ministrative functions, 107 ; advantages of their 
branches, 108 ; their annual meetings of share- 
holders, 114; their balance sheets, ib. ; their 
profits, and the modes of distribution, 112; 
causes of their failures 114; their advantages, 
278. See Causes. 

in London. Points on which 



they differ from the private bankers, 263 ; num- 
ber of partners, ib. ; a known amount of capital, 
264; grant interest on lodgments, 265; no 
Christmas boxes to clerks, ib. ; have branches, 
266. Points in which they differ from each 
other: — three give interest on the minimum 
balance of a current account, 270, 272, 274, 279; 
two take commission accounts, 264, 279 ; one has 
branches in the country, 278. 

in the country. Origin of, 



300 ; provisions of their deeds of settlement, 301 ; 
a list of those now in existence, 302 ; of those 
that have stopped payment, 306 ; of those that 
have wound up, ib. ; of those that have stopped 
and resumed, 307 ; of those that have merged in 
other joint-stock banks, ib. ; see, also, 431. 
Journal. Merchants', describe it, 180 ; bill journal 
and discount journal, 159. 



Keeping a banker. What is it ? 424 ; more gener- 
al in Scotland than in England, ib. ; reasons for 
doing so, 425 ; which banker should we choose, 
426 ; mode of opening and keeping the account, 
ib. ; interviews with the banker, 427. 

Kindness to the poor. A source of wealth, 
417. 

Kinnear, George, manager of the Commercial Ex- 
change Company. Extracts from his letter to 
Mr. Blair, 349 ; extracts from his pamphlet on 
Exchange Companies, ib. 

Knowledge. The advantages of, 405. 

of his customers, of great importance 



to a banker, 17. 



450 



Alphabetical Index. 



Labor. Division of, among clerks, 131 ; one of- 
fice should be a training for the next above it, 
145. 

Laboring classes. Advantages they derive from 
banks, 337, 339. 

Lancashire, circulation of. Consisted mainly of 
bills of exchange, 40 ; how altered, ib. 

Large accounts. Should not be taken by small 
bankers, 19. 

advances to one customer. Not desirable, 

116. 

■ banks. The formation of, prevented by the 
Act of 1844, 287. 

Laws of the currency. With reference to the Bank 
of England. 240 ; to the country banks, 292 ; to 
Scotland, 327 ; to Ireland, 372. 

Law suits. Rules to be observed with respect to 
them, 398. 

Lawyers. Opinions of, with regard to a special fol- 
lowing a general indorsement of a bill of ex- 
change, 29 ; banks should employ none but hon- 
est ones, 400. 

Leatham, Mr. His calculation as to the amount 
of bills of exchange in circulation, 40, 41. 

Lectures on ancient commerce. Quotations from, 
on the amusements of a merchant, 14 ; on bad 
writing, 151 ; on habits of business, 146. 

Ledger, current account. Describe it, 158; pro- 
gressive, describe it, ib. 

general. Describe it, 165; merchant's, de- 
scribe it, 181. 

keeper. His desk, where placed, 123. 

Leeds. A bank that failed there is said to have ad- 
vanced money on shares, 116: its banks have 
sometimes advanced money on mills, 115. 

Legislation. Has made banks too numerous, 318 ; 
prevents the formation of large banks of issue, 
381. 

Letters addressed to the author. By Mr. Robert 
Bell, 320, 325 ; by an Irish banker, 384 ; from In- 
dia, 341. 

between the Government and the Bank, re- 
specting the Act of 1844, 247. 

of bankers. Form of, 162. 

of credit. Form of, 212. 

of guarantee. Forms of, 203 ; of deposit of 

deeds, 209; of credit, 212. 

addressed to banks, as security 

for bills discounted, 208 ; to accompany a lodg- 
ment of deeds, 209. 

of Nehemiah. Quoted, 74, 76, 288. 

to a branch manager. Quoted, 18. 

to shareholders. Forms of, 203, 215. 

Lettre d'Indication. What is it ? 218. 

Liability of shareholders in joint-stock banks. 
Not limited by charters granted under the new 
Act, 310. 

in the Guarantee Society the shareholders 

are not liable on their policies beyond the 
amount of their shares, 225 ; and ratably only 
with other parties, 226. 

Liberality in the cause of religion. A source 
of wealth, 406, 418 ; rules for its exercise, 
410. 

Library, a banking. Every bank should have, 143. 

Licenses to issue notes. Alteration made by the 
Act of 1844, 237. 

Life policies. A banker should not make advances 
on, 26 ; the value of, 27. 

Light. Regard should be paid to, in fitting up an 
office, 127 ; prevents mistakes, 128 ; produces 
cheerfulness, t'6. ; how it should fall, ib. 

Lists. Describe the books so called, 160. 

Literary societies. Bank managers should pro- 
mote, 412. 

Liverpool bankers have made advances on cot- 
ton, 23. 

Loans, to stock or bill brokers, 48 ; loans to clerks, 
144, 223. 



Loans. How made in London, and how in the 
country, 23 ; when are they dead ? ib. ; quotation 
from Mr. Taylor, respecting, 25 ; how entered in 
the books, 163. 

and discounts. The demand for them will 

increase in seasons of pressure, 58. 

Local directors of branches. Not now appointed 
generally in England, 119; of the Provincial 
Bank of Ireland, 362. 

Locality. What is the best for a bank ? 126. 

Lodgments. Enumerate the accounts that are 
placed under this head in the general ledger, 166. 

London bankers give information to each other, 
6; do not reissue country notes or bills of ex- 
change, 251 ; difference between City and West- 
end bankers, 19. 

private bankers, 249; list of, 250; the 



principles of their administration, 251 ; the oper- 
ations of the clearing-house, ib. 

joint-stock banks, 259 ; their number, ib., 

279 ; abstract of their returns to the Stamp-office, 
280 ; statement of their affairs from their last re- 
ports, ib. 

and Westminster Bank. Form of their 



circular notes, 21S ; list of foreign bankers who 
pay them, 219; its history, 259; its principles, 
263 ; its branches, 266 ; its government, 263 : its 
paid-up capital, profits, dividends, and surplus 
fund, 269 ; its prospectus, ib. 

•Joint-stock Bank. Its formation, 270; Its 



capital, profits, dividends, and surplus fund, 273; 
its prospectus, ib. 

and County Bank. Its original title, 277; 

private banks merged in, 273 ; its prospectus, ib. 
and Dublin Bank. Merged in the Nation- 



al Bank of Ireland, 363, 372. 
Long Annuity. How a purchase of, is passed 

through the books, 191. 
Lord Bacon. His observation on reading, writing, 

and conversation, applied to bankers, 148. 
Lost bill of exchange. What is the law respecting 

it? 34. 
Love thy neighbour as thyself. How can a banker 

do this ? 393 ; not practised by street cigar-smok- 

era, 403. 
Loyd, Lewis. His evidence upon the bill-circula- 
tion of Lancashire, 40. 

Samuel Jones. Reply to his observations 



in favor of the currency principle, 62; his liber- 
ality to his clerks, 33. 



McCulloch, Mr. His observations on the clear- 
ing, and his description of the advantages of the 
clearing-house, 258. 

Mammon, temples of. Buildings of public compa- 
nies should not be so, 423. 

Manager. Should be selected solely on account ol 
his banking talents, 103 ; should be characterized 
by circumspection and uprightness, ib. ; his va- 
rious duties, 106; must not be engaged in any 
other employment, ib. ; his conduct towards the 
customers, ib. , should be prompt and decided, 
107; in some banks the administrative power is 
vested solely in the manager, 103. 302; large 
banks can command the services of the most tal- 
ented managers, 114; should study his weekly 
balance-sheet, 118; in 1S36 joint- stock banks 
were formed faster than good managers could be 
obtained, 121 ; his efficiency will depend on his 
social position, ib. ; the most important of a 
manager's functions is to give advice to the di- 
rectors, 122; evils of amanaser being badly paid, 
124 ; an instance of liberal feeling in the share- 
holders of a joint-stock bank towards their man- 
ager, ib. ; how clerks are trained to become man- 
agers, 146 ; names of the managers of all the 
joint-stock banks. 302 ; under the new Act a bank 
must have one, 310 ; of branches. xiO. 



451 



A Treatise on Banking. 



Manager s house. Should be wholly separate from 
the bank office, 127. 

Manchester. Banks at, advanced money on mills, 
23, 114; made advances to some of their own 
directors, 117; services of plate were presented to 
directors shortly before their banks stopped pay- 
ment, 123. 

the Bank of, extract from its first re- 
port, 122 ; evidence of its directors before the Par- 
liamentary Committee, ib. ; failure of, ib. ; had a 
large amount of drafts on London in circulation, 
115. 

Manufacturers in Scotland have no inducement to 
become bankers. Why ? 334. 

Marshall, James, the late secretary of the Provin- 
cial Bank of Ireland. His evidence as to wheth- 
er banks should hold their reserves in Govern- 
ment securities, 44 ; his evidence as to the for- 
mation and management of the Provincial Bank 
of Ireland, 360. 

Masters. Duties of towards their servants, applied 
to banks. 401. 

Memorandum. What document is so called? 162. 

of agreement, with regard to a lodg- 
ment of deeds in a bank as security for advances, 
209. 

Memory, artificial. Different systems of, 199; 
sometimes useful as applied to figures, 200. 

Merchants. Advantages to, from keeping a bank- 
er, 5 ; their book-keeping, compared with the 
banker's book-keeping, 180. 

Mercury. The god of merchants and bankers, who 
went in public procession to his temple at Rome 
every year, 404. 

Merits of" clerks. Different ways of ascertaining, 
144 ; should influence their promotion, 136, 138, 
145. 

Metropolitan Bank. Wound up. and its business 
transferred to the Union Bank of London, 281. 

Mind. Reproofs have most effect on the, when ad- 
ministered in seasons of affliction, 59; men of 
business apt to overlook, though among no class 
are mental phenomena more strikingly exhibited, 
124; its energies are depressed by the fear of 
censure, or the dread of responsibility, 149 ; a 
sense of independence essential to the full devel- 
opment of its powers, ib. ; how its faculties are 
affected by kindness and generosity, 125; how 
the minds of managers are influenced by the 
amount of their salaries, ib. ; and those of direct- 
ors, ib. ; and those of clerks, 133, 138 ; its general 
cultivation renders its faculties more effective 
in every particular application of them, 412; 
public companies are triumphs of, ib. ; advanta- 
ges to public companies from servants of cultivat- 
ed minds, ib. 

Mines, Royal. The governor and company of, re- 
ceived assistance from the Bank of England, 114. 

coal. Not good security for a bank advance, 

115 ; forbidden in some deeds of settlement, 301 ; 
mining associations should not rejoice when ac- 
cidents occur in rival mines, 398. 

Minors, under twenty-one years of age. In what 
cases they may accept bills of exchange, 34. 

Mona. Bank of. A branch of the City of Glasgow 
Bank, in the Isle of Man, has a charter from the 
local government under this title, 308. 

Money. A banker is a dealer in, 1 ; bank a safe 
place of deposit for, 2 ; effect of its increase, 52 
71, 86. 

origin of the word, 222; applied only to 

coin in banking book-keeping, 155. 

book. Describe it, 156 ; how superseded, 

177. 

Moral agents. What constitutes moral agency, 
337, 413; are banking companies moral agents? 
387; what duties have they to perform? 393; 
what reward or punishment follows the perform- 
ance or non-performance of these duties.? 413. 



An element of tha 
inproves the 



Moral character of a party, 
banker's security, 7. 

feelings. The cultivation oi, 

intellect, 401. 

sense. What is it, 413; absurdity of deny 

ing its existence, ib. 

influence. Of banking, 7 ; of cash credits. 

334; of deposits, 339. 

Morris, James, Governor of the Bank of England 
in 1848. His evidence as to the cause of the 
pressure in 1847, 64 ; his statement as to the 
liberality of the Bank of England, 95 ; his opin- 
ion as to the Bank of England discounting for 
country banks of issue, 291 ; his evidence as to 
the increase of notes required for circulation 
through the exclusion of the joint-stock banks 
from the clearing-house, 283. 

Moses. An example to bankers, 15 ; was instruct- 
ed to make use of other men, ib. ; taught the 
doctrine of national responsibility, 390 ; his law 
against muzzling the mouth of the ox that tread- 
eth out the corn, 402 ; cautions the Israelites 
against forgetfulness of God in the time of their 
prosperity, 404 ; his laws framed on a principle 
of righteous retaliation, 420 ; made laws in favor 
of the poor, 408 ; and, moreover, exhorted the 
people to voluntary benevolence, ib. 

Murray, Robert, chief officer of the Provincial Bank 
of Ireland, 365 ; his evidence as to one bank of 
issue, 374 ; the tables he presented to the Lords 
Committee, 379. 

Names of talented men should not bias us in our 
inquiries after truth, 62. 

National Bank of Ireland, 367 ; extracts from ita 
prospectus, ib. ; adopted the local shareholder 
principle, ib. ; its chief connections at first among 
the Repealers, ib. ; took the business of the Lon- 
don and Dublin Bank, 368 ; acts in some cases 
as a savings bank, ib. ; the last statement of its 
affairs, ib. ; its branches, ib. 

Exchange Company at Glasgow, 351. 

Nations. Are moral agents, 390 ; can only be pun- 
ished in their collective capacity in the preseni 
world, 412 ; in what way are they thus punished 
or rewarded ? 390 ; the analogy between nations 
and public companies, 391. 

Nehemiah. The letters of, quoted with reference 
to the Act of 1844, 74, 76. 

New accounts. Precautions in taking, 19. 

connections. The best way of getting them, 

59. 

joint-stock banks in England. Provisions of 

the Act for regulating, 308. 

Newcastle. Banks at, advanced money on collier 
ies, 114; and to corn merchants, 116. 

New York. Par of Exchange between, and Eng- 
land, 196 ; an Act passed in that State relating to 
banking, 440. 

Nineveh. Jonah's prophecy against, 392. 

Northampton Tables. The probability of life by 

Northern and Central Bank. Stopped payment in 
December, 1836, 55 ; could not have been assist- 
ed by the Bank of England in 1836 had the Act 
of 1844 been then in operation, 63; sold their 
branch at Leeds for £6,500, 114; debts due to 
the bank by their directors, 125 ; wound up, un- 
der the superintendence of the Bank of England, 
306. 

Northern Banking Company at Belfast. Its origin, 
371 ; its capital, &c, ib. ; its branches, ib. 

Note department. What books are kept in the, 
164. 

register. Describe it, 164. 

Noted. Inland bills are noted, foreign bills pro 
tested. 31. 

Notes of hand. Advances nu, better than loan* 
25. 



452 



Alphabetical Index. 



Notes in circulation. How entered in the books, 
167; how to calculate the time they remain in 
circulation, 188. 

or life, by J. Taylor, quoted with reference 

to money, 13 ; with reference to loans, 25. 

Notice of the dishonor ofa bill of exchange. What 
it should import, 36 ; xiho should give it, t'6. ; 
when it should be given, 37 ; to whom it should 
be given, ib. ; must it be in writing ? ib. 

Notices of calls on shares. Form of, 216. 

Number of clerks. Should not be too dispropor- 
tionate to the work, 145. 

■ of persons who enter a bank. How to as- 
certain, 199. 

of banks of issue in the United Kingdom, 

2yi. 

Numerous banks. Not the result of competition, 
but of legislation, 318. 

Nursing an account. What is it ? 27. 

Oath of secrecy. Required in a bank deed of set- 
tlement, 301. 

Obedience to the laws. The duty ofa public com- 
pany, 394, 397. 

Office. The arrangement of the, 126 ; administra- 
tion of the, 127 ; the arrangement of, with re- 
gard to space, light, and ventilation, ib. ; selec- 
tion and appointment of the clerks, 129 ; the dis- 
tribution of their duties, 131 ; the amount of 
their salaries, 132; the system of promotion, 136 ; 
rules of discipline, 139 ; training of clerks for 
higher offices, 144. 

One bank of issue. A summary of the author's 
evidence respecting its probable effects, 243. 

Opinion, good, of their banker, has been the means 
of raising people from obscurity to wealth, 7. 

Opinion of clerks as to each other's qualifications 
are generally correct, 144. 

Order. A banker should always observe a princi- 
ple of order, 16, 117. 

Paio-ttp capital. How is this account kept in the 
books, 169. 

Palmer, John Horsley, Governor of the Bank of 
England in 1832. His evidence of the causes of 
the pressure of 1825, 53. 

Panic. Wherein panic differs from pressure, 52, 
72, 73; produces hoarding, 73. 

Par of exchange. What is it? 196. 

Parentage Of a candidate for a clerkship, to be 
inquired into, 130. 

Paris. The way of estimating the relative value 
of gold in Paris and London, 196. 

Partners. Number of, in the joint-stock banks in 
England, 306 ; in each of the Scotch banks, 315 ; 
in each of the London private banks, 250; in 
each of the joint-stock banks in London, 230. 

Pass-book. Describe it, 154, 427. 

Past-due bills. How entered in the books, 163. 

Patriotism. The duties of, 393 ; obedience to the 
laws, 394 ; to enforce the laws upon others, t'6. : 
to support the civil power, t'6. ; to encourage the 
industry, trade, and fine arts of the country, ib. ; 
to maintain a high-toned morality. 395. 

Paul, St. Has twice quoted the enactment of Mo- 
ses against muzzling the ox that treadeth out the 
corn, and applied it to the case of servants, 402. 

Payment to the Bank of England for conducting 
the public business, 235. 

Peel's, Sir Robert, Act of 1844. The practical ad- 
ministration of a bank under, 61 ; objections to 
the principle. 62; the amount of currency must 
fluctuate with the foreign exchanges, ib. ; and 
also from a domestic demand for gold, t'6. ; a 
separation must take place between the banking 
and issuing departments of the Bank of England. 
t'6 ; great fluctuations would take place in the 
prices of the Government securities, 63; the 



bank would be unable to afford assistance to i.ne 
commercial classes in seasons of pressure,. t'6. 

Peel, Sir Robert, his examination of the author in 
the Committee on Banks of Issue, 294. 

Penalty. On drawing cheques on a bank beyond 
fifteen miles distant, 32 ; on banks that issue 
notes beyond the authorized amount, 286. 

Penny. Origin of the word, 224 ; history of the 
penny, ib. 

Periods in a cycle of the currency, 81. 

Philosophy of joint-stock banking, by Mr. Bell. 
Quotations from, 102-104. 

Phrenology. Not necessary to enable a banker to 
know the character of his customers, 18. 

Pocket-money. How passed through the bank ac- 
count, 427. 

Political economy of the Bible, 418. 

Pollard, George, manager of the London Joint-stock 
Bank, previously chief clerk in the private bank 
of Messrs. Williams, Deacon, &, Co., 270. 

Population of the United Slates, and the number of 
banks, 442. 

Portuguese bill. The form of one, 39. 

Poverty. It is better to prevent than to relieve, 
410 ; produced by want of diligence, injustice, 
imprudent habits, neglect of religion, unkind- 
ness to the poor, 417. 

Pound. What is a pound J 196, 222. 

Prayer. It is the duty of the servants of public 
companies to pray for the prosperity of the com- 
pany whom they serve, 403. 

Preliminary expenses. How is this account kept 
in the books ? 169. 

Presentment of a bill. For acceptance, 32 ; for 
payment, t'6. ; when in reasonable time, 35 ; for 
payment, is legal at the clearing-house, 36 ; should 
we write presentment or presentation ? 1 1. 

Pressure on the money market. Definition of, 52, 
71 ; preceded by a low rate of interest, specula 
tive investments, and an unfavorable course or 
the foreign exchanges, 52: the pressure of 182£ 
was preceded by a reduction of interest on the 
public funds, acknowledgment of the South 
American Republic, speculation in commercial 
produce and foreign loans, failure of the banking 
house of Sir Peter Pole & Co., 53; pressure of 
1936 was preceded by speculations of all kinds, 
high prices, rejection of American bills by the 
Bank of England, reports on the joint-stock 
banks, failure of the Agricultural Bank of Ireland 
and the Northern and Central Bank of England, 
53-55 ; pressure of 1839 preceded by abundance 
of money, — Bank of England sent gold to Amer- 
ica, — importation of American securities, — un- 
favorable harvest, 55 ; the Bank of England ob- 
tained assistance from the Bank of France. 56 : 
comparison between the pressures of 1836 and 
of 1839, t'6. ; pressure of 1847 preceded by a low 
rate of interest, speculations in railways, bad 
harvests and a high price of corn, failure of 
houses in the East and West India trade, facili- 
ties given to credit by the Bank of England and 
subsequent restrictions, failures of banks and 
discount brokers, 63, 64 ; administration of a 
bank in a season of pressure, 57 : a banker who 
wishes to be easy in a time of pressure must act 
wisely in the previous season of speculation, ib. ; 
steps to be adopted on the approach of pressure, 
53 ; in the pressure a banker has three demands 
on his funds, t'6. ; means to be taken to meet 
them, t'6. ; no use to call up dead loans, or at- 
tempt to reduce discounts, t'6. ; a banker will 
have to give many refusals, 59; should be cau- 
tious in taking accounts from other bankers, ib. ; 
should not attempt to get away the customers 
of other banks, ib. ; how he should treat wealthy, 
but wandering customers, t'6. ; how he should 
treat customers in difficulties who apply for as- 
sistance, 60 ; whether he should increase his al- 



453 



A Treatise on Banking. 



iowance of interest on deposits, ib. ; should pay 
great attention to the published returns of the 
Bank of England, ib. ; will extend his accommo- 
dation as the pressure declines, ib. ; during the 
pressure a banker should pay great attention to 
the state of his health and the discipline of his 
mind, 61. 

Pressure of the year 1S25, 53 ; of the year 1836, 55 ; 
of the year 1839, ib. ; of the year 1847, its effect 
on the circulation of country banks, 294. 

how a banker should act in anticipation 

of one, 58 ; how during one, ib. 

Preston Banking Company. The only bank in 
England having a charter under the Act of 1844,* 
369 ; a return of their assets and liabilities, ib. 

Private banks. The administrative functions of 
the several partners, 107 ; how prevented in 
Scotland, 334; private accounts, who inspects 
them, 301. 

Taking the unsound business of, 

the cause of the failure of some joint-stock banks, 
113. 

Proceedings of a general meeting of shareholders, 
203. 

Profit. The source of a banker's, 2 ; how appro- 
priated, 112; amount of the London and West- 
minster Bank, 269 ; of the London Joint-stock 
Bank. 273; of the Union Bank of London, 275; 
of the Commercial Bank of London, ib. 

and loss account balance-sheet. Describe 

it, 171. 

Profits, large. Bankers must not expect, under the 
Act of 1844, 80. 

Progressive-ledger. Describe it, 158 ; how are the 
balances brought out ? 153. 

Promises. Must be kept, even when the keeping 
would be injurious to the parties who made them, 
396. 

Promotion. Should go by seniority, unless there 
is great superiority of merit, 138 ; should not be 
too rapid, ib. 

Property. Has its duties as well as its rights, and 
its rights as well as its duties, 405 ; its rights are 
the first that are disregarded by an irreligious 
population, ib. 

Proprietors. Proceedings of, have sometimes been 
injurious to their banks, 122-124. 

accounts. Enumerate those accounts 

which are placed under this head in the general 
ledger, 166; how are they kept? 169. 

Proprietors' ledger. Describe it, 174. 

Prosecution. The Guarantee Society have power 
to prosecute all parties whose frauds they make 
good, 225. 

Prospectus of a new bank. What it contains, 
203. 

Prosperity. Acquired by unrighteous means is 
transient, 422 ; and is not to be envied, ib. ; ob- 
tained by virtue and piety should excite joy and 
thanksgiving, 423 ; it affords pleasure to God and 
to men, ib. 

Prosperous companies should examine if they have 
properly discharged their moral and religious du- 
ties, 422. 

Proverbs. Not found among those of Solomon, 
417. 

Provident Clerks' Provident Fund. The rules of, 
226. 

Provincial Bank of Ireland, 358 ; Act under which 
it was formed, 359; its objects, 360; state of 
banking in Ireland at the time of its formation, 
t'6. ; its constitution, 361 ; the selection of offi- 
cers, ib. ; the choice of directors, ib. ; the daily 
committee, 364 ; the inspection of branches, 
365 ; the declaration of a dividend, ib. ; the 
causes of its prosperity, 366 ; last statement of 
:ts affairs, ib. ; its branches, ib. 



Provisions of the Act of 1845, which regulates the 
issue of notes in Scotland, 313. 

for regulating the is 

sue of bank-notes in Ireland, 352. 

Proxy, voting by. Form of letter, 203. 

Prudent habits. A source of wealth, 417. 

Prussian coin. English money reduced into, 222. 

Public companies. This is the age of, 387; are 
they moral agents, ib. ; what are their duties to- 
wards the state, 393; what are the duties arising 
from their social relation, 395 ; what are their re- 
ligious duties, 404; what are their duties to- 
wards the poor, 408 ; will they be rewarded for 
the performance of moral and religious duties ? 
412; when? ib. ; how? 415; in what manner, 
418 ; what are the deductions from this doctrine ? 
421. 

works in Scotland. Promoted by means of 

cash credits, 334. 

Punishments. How should they be administered ? 
150; of banks, 415 ; future, 414. 

Questions. "With reference to the discounting of 
bills, 21. 

■, a series of, on banking calculations, 



201. 

Quotations. From Taylor's Notes on Life, 13, 25; 
Taylor's Statesman, 13, 104, 134; Bankers' 
Magazine, 18; Evidence given before Parliamen- 
tary Committees, 40, 282, 294 ; Sir W. Clay, 53 ; 
Reports of Lords' Committee, 63, 66 ; President 
of America, 75, 77 ; Bell's Philosophy of Joint- 
stock Banking, 102, 104 ; Mill's Political Econo- 
my, 132; Adam Smith's Wealth of Nations, 132, 
175; Guarantee Society's Prospectus, 135; 
Times newspaper, 143, 344 ; Foster's Double En- 
try Elucidated, 150, 175 ; Babbage's Economy of 
Machinery and Manufactures, 175; Francis's 
History of the Bank of England, ib. ; Wallace's 
Pocket Guide to Commercial Book-keeping, 183; 
Waterston's Commercial Dictionary, 192; "Wa- 
terston's Manual of Commerce, 201 , 222; Notes 
of a Book Worm, 222 ; Rules of the Provident 
Clerks' Benevolent Fund, 226 ; the Cambrian, a 
Welsh newspaper, 238; M'Culloch's Commercial 
Dictionary, 258 ; Dr. Franklin, 6 ; Bailey on the 
Laws of Bills of Exchange, 10, &c. ; Chitty, on 
ditto, ib. ; Byles, on ditto, 36; Glen, on ditto, in 
Scotland, 10, &c. ; the Fifth Report of the Lon- 
don and Westminster Bank, 261 ; Foreign and 
Colonial Review, 241, 292; Reports of Parlia- 
mentary Committees, 301, 312; Bell's Letters to 
J. W. Gilbart, 320, 323, 326; Kinnear on Ex- 
change Companies, 348. 

Railway deposits. How managed through the 
banking department of the Bank of England, 
70, 92. 

Railways have diminished the amount of country 
notes in circulation, 293; railway speculators 
are dangerous customers to a bank, 116 ; compa- 
nies should not rejoice when accidents occur on a 
rival line, 398; have very properly prohibited 
smoking in their carriages, 403. 

Reader's Time Tables, 186. 

Reasonable time for presenting a bill or cheque. 
What is it; 35. 

Receipts. Not usually given by London bankers, 
154 ; what is the form of a shop receipt, t'6. 

Re-discounting of bills. Advantages and abuses ol 
the practice, 22 ; not done by London bankers, 
47 ; why not by the Scotch banks, 323. 

Reduction in the amount of fixed issues of banks 
since the passing or the Act of 1844, 291. 

Refusals. A banker will have to give many in sea- 
sons of pressure, 59 ; should always be givea 
with courtesy, 106, 402. 



* Another has been recently formed, in London, called the British Bank. 

454 



Alphabetical Index. 



Regulations for settling the bank exchanges at Ed- 
inburgh, 344; at Dublin, 335. 

Relief granted to distressed clerks, 223. 

Religion, pure. What is it? 403; is the friend and 
guardian of the poor, 407. 

Religious duties. The foundation of, 390; public 
companies are bound to perform, 337 ; what are 
the chief that devolve upon public companies, 
403 ; in what way will their performance be re- 
warded, 413. 

Remittance. Banks of, 4. 

Reports. Required from the banks of New York, 
440 ; made quarterly to the Government, 441 ; 
what it must contain, ib. ; to be published in the 
local newspaper, ib. ; penalty for non-compliance, 
411 ; the comptroller may appoint a competent 
person to examine into the affairs of any bank, 
ib. ; the capital of banks subject to taxation, ib. ; 
table of all the banks in the States, 442. 

Reproofs. How should they be administered, 150. 

Requisition Notes. Forms of, 213. 

Reserves of bankers. In what should they be held, 
44 ? of the Bank of England, 89. 

Respectability. A banker is a referee as to the re- 
spectability of his customers, 6. 

Responsibility, national. The doctrine of, taught 
by Moses, 390; proved by history, 391; is not 
destructive of personal responsibility, ib. ; of in- 
dividuals connected with public companies, 
393. 

Restrictions. On the issue of the country banks, 
70 ; on the banks of Scotland, ib. ; and of Ire- 
land, ib. 

Retaliation. A principle of righteous retaliation is 
the prevailing principle of the Divine govern- 
ment, 419; is the principle of the Mosaic law, 
ib. ; recognized in the denunciations of the 
prophets, ib. ; illustrated by historical facts, 420; 
is agreeable to the feelings of human nature, ib. 

Retired. When is a cheque or note said to be so? 
154. 

Returns. All banks to make a return to the stamp 
office of the names of their partners, on the 
first day of January in each year, or within 
[fifteen days afterwards ; the commissioners 
shall publish their names in some local news- 
paper before the first day of March following, 
249 ; monthly returns of the assets and liabilities 
required under the new Act, 309. 

Rewards and punishments. Essential to moral 
agency, 412 ; when bestowed on public compa- 
nies, ib. ; what is their nature, 415; in what 
manner are they bestowed? 413; what effects 
should they produce ? 424. 

Rich men. Advances to, sometimes become dead 
loans, 23. 

Righteousness in dealing. A source of wealth, 
417. 

Rights of property. Are as sacred as any other 
rights, 405. 

— social. Divided into perfect and imperfect, 

406. 

Rivalry between bankers. Injurious, 123; not ad- 
visable in seasons of pressure, 59. 

Rogers's Chapters on Country Banking. A useful 
work, 208. 

Rome. In ancient, the merchants and bankers had 
an annual procession to the temple of Mercury, 
404. 

Royal Bank of Ireland. Its formation, 371 ; the 
last statement of its affairs, ib. 

-Exchange. Exhibits the religious mottoes 

of the City of London and the Mercers' Com- 
pany, 404. 

Rules "of discipline in a bank, 139. 

Rumors are rife in seasons of pressure, 59 ; a bank- 
er should not occasion, 61. 



2E 



132; of 



Saeeath-day. The duty of public companies to 

reverence, 406 ; its design, ib. ; its abolition 

would be injurious to the poor, 407. 
Salaries. Of clerks, rules respecting, 

managers, 124 ; of directors, 125. 
Sanderson & Co., bill-brokers. Stopped payment 

through the failure of Lesley, Alexander, & Co., 

corn merchants, 116. 
Savings banks. In what cases money should be 

placed there, 430. 

at St. Clement Danes. Terms for 



granting annuities, 230; the National Bank of 
Ireland acts as one, 363. 

Scale of salaries. Desirable, 133. 

Scrimgeour, William Wilson. General manager of 
the Union Bank of London, previously a chief 
officer in the discount department of the Bank of 
England, 274. 

Scotch banks. Their investments in Government 
securities, 44, 46. 

Scotland. Principles of banking in, 3 ; bills drawn 
from, regarded as foreign, 31. 

the laws of, with reference to banking, 

311; the existing banks of, 314; comparison be- 
tween the banks of Scotland and those of Eng- 
land, 319 ; the laws of the currency in Scotland, 
327; its cash credit system, 332; its deposit 
system, 336 ; remittances to India, 340 ; regula- 
tions for settling the exchanges, 344 ; exchange 
banks and exchange companies, 346 ; different 
effects of the Bank Acts of 1345 in Ireland and 
in Scotland, 353, 379; keeping a banker more 
general in Scotland than in England, 325, 426. 

banks in. List of those in existence in 

1326,314; of those formed since, ib.: of those 
now in existence, 315 ; of the changes that have 
taken place, 316; of those that have failed'or 
wound up, 313; of the nine that remain, ib.] 
of those in Edinburgh, 319; of those in Glas- 
gow, ib. ; difference between Scotch banks and 
English banks, ib. ; capital of all the banks in 
Scotland, 321. 

branch banks in. Number of, 291 ; more 



general in Scotland than in England, 319; aver- 
age amount of capital and of circulation to each 
branch, 321 ; branch system leads to uniformity 
in charges all over Scotland, 322; branches of 
the Edinburgh banks have been opposed and 
sometimes defeated by the local banks, 323; 
branches enable the bank to avoid re-discount, 
ib. ; produce uniformity in the mode of making 
the exchanges, ib. ; enable the large banks to 
exercise a surveillance over the small ones, 326 ; 
the number of would be diminished if the notes 
under £ 5 were abolished, 331. 

Scripture. Proves that relations imply correspond- 
ing duties, 333; proves national responsibility, 
390 ; family responsibility, 391 ; collective re- 
sponsibility of cities, 392; states the principles 
of social duties, 395 ; denounces those who vio- 
late the Sabbath-day, 406 ; enforces the duty of 
benevolence to the poor, 40S ; gives the rule for 
exercising it, 409; concurs with reason in regard 
to a future judgment, 414; all its threatenings 
against public bodies of men have reference to 
the present world, 415 ; do not teach that wealth 
is an evil, ib. ; nor that its enjoyments are sin- 
ful, 416 ; promises wealth as a reward to the 
pious and the virtuous, ib. ; specifies the vir- 
tues which are followed by wealth, 417; de- 
clares the doctrine of a righteous retribution in 
the present world, 419. 

Seasons of pressure. Characteristics of, 53. 

of speculation. How a banker should act 

in them, 57. 

Securities. A banker will probably have to realize 
some in seasons of pressure, 58. 

for clerks, 135 ; Guarantee Societies, ib. 

Secrecy. On the part of directors and clerks en j 

455 



A Treatise on Banking. 



joined in deeds of settlement, 301 ; form of a 
declaration of, 207. 

Self-dependence. Bankers should conduct their 
banks on a principle of, 78 ; should not depend on 
the Bank of England for assistance in seasons of 
pressure, 79 ; nor on bill-brokers, ib. ; nor on oth- 
er banks, 80. 

knowledge. Necessary to a banker, 13. 

Seniority. Should be observed in the promotion of 
clerks, unless there are special reasons for the 
contrary, 138. 

Servants. He who keeps a banker need not trust 
his money to his servants, 3; duties of banks to- 
wards, 401 ; duty of servants towards the bank, 
402; advantages of religious ones, 411; advan- 
tage to a bank of educated ones, 412. 

of banks and other public companies. 

What are their duties ? 402. 

Shareholder's register. Describe it, 171. 

- — in joint-stock banks. Are liable to 

the full extent of their property for all the debts 
of the bank, 263, 300 ; the same under the new 
charters, 310; the same in Scotland, 311, 319; 
and in Ireland, 357; they choose the directors, 
301 ; can dissolve the company, ib ; have 
sometimes acted unwisely, 123; their conduct 
towards the servants of the bank, 400. 

Shares in bank. Under the new Act cannot be less 
than £100, 309; amount of in the joint-stock 
banks of London, 280 ; of the banks of Scotland, 
315 : of the banks at Belfast, 371 ; banks formed 
under the new Act not allowed to purchase or 
make advances on their own shares, 309 ; exist- 
ing banks not thus restricted, 301 ; prices of 
shares in the banks of Scotland, 315. 

in public companies. Advances on by 

bankers, become dead loans, 24. 

Shillings. The origin of the word, 223. 

Signature-book. Describe it, 154. 

Silver. Its specific gravity, 196; how coined, ib. 

Sin. The besetting, 13, 124. 

Singing. In moderation, good for the health of 
bank clerks, 141. 

Single entry. Wherein does it differ from double 
entry, 183. 

Singular. Is the word "bank" singular or plu- 
ral? 8. 

Situation-book for clerks. Where is one kept ? 229. 

Small banks. The evil of, 108 ; the result of legis- 
lation. 318, 379. 

Smee, Alfred. The surgeon of the Bank of Eng- 
land, 141. 

William Rae. His improvements in the 

book-keeping of the Bank of England, 175. 

Smith, Adam. His observations on wages, 132; 
on the division of labor, 175. 

Smoking. In the street and in places of public re- 
sort, is improper, 404. 

Smuggling. In what cases a smuggling considera- 
tion vitiates a bill of exchange, 33. 

Social duties, 395; speak ye every man the truth, 
ib. ; ye shall not steal, nor deal falsely, ib. ; let 
not wickedness dwell in thy tabernacles, 396; 
speak not evil one of another, 397; meddle not 
with them which are given to change, ib. ; love 
thy neighbour as thyself, 398; if thine enemy 
be hungry, feed him, ib. ; do what is just though 
the law may not require it, ib. ; be all of one 
mind, pitiful, courteous, 400; use hospitality, 
401 ; oppress not a stranger, ib. ; give to your ser- 
vants what is just and equal, ib. ; servants, be 
obedient to your masters, 402; visit the fatherless 
and widows in their affliction, 403 ; do good unto 
all men, ib. 

Social position. The efficiency of a manager will 
depend upon, 121 ; those who have risen in the 
world should entertain kind feelings towards the 
class from whence they have sprung, 401 ; social 
life among the Hebrews, 403 



Social relations. Are the foundation of social du 
ties, 388 ; public companies are capable of sus- 
taining, ib. 

Sovereignty of the Divine proceedings, 420. 

Space. An important consideration in the con- 
struction of a bank, 127. 

Spanish bill. The form of one, 39. 

Special contracts. Forms of, used previous to 1844, 
when a banking company could not sue by its 
public officer, 216. 

Speculation, reckless. Has been the ruin of compa- 
nies as well as of individuals, 397. 

Speculations. Are produced by a low rate of intei 
est, 53 ; are the precursors of pressure, 57. 

Speculative customers. Troublesome to bankers, 
57. 

investments. Usually precede a sea- 
son of pressure, 53. 

Stamp-duty on notes. How to calculate the compo 
sition of, 188. 

Stamps. On bills of exchange, 33; on receipts op 
transfer of shares, 172; on bank notes, 284. 

State. Duties of public companies towards the, 393. 

Statement- book. A printed collection of the week- 
ly statements of the affairs of a bank bound to- 
gether, is so called, 173, 433. 

Statesman, the, by Mr. Taylor. Quotations from, 
on decision, 13 ; on making use of other men, 15 ; 
on the age of members of public boards, 104 ; on 
the union of wisdom and goodness, 131 ; on the 
salaries of clerks, 134; on the rules of promotion, 
138. 

Stationery. In a bank, is under the care of the chief 
clerk," 140. 

St. Marylebone Bank. Wound up, and its business 
transferred to the London and Westminster Bank, 
281. 

Stewart, P. M., m. p. Letter from the author to, 
on the exchange banks, 346. 

Stock-book. Describe it, 163. 

brokers' charges, 191. 

Exchange. Explanation of its operations, 

49 ; bankers' loans there, 50 ; the Dublin, 383. 

jobbers. Wherein different from stock- 
brokers, 48. 

purchase of. How to calculate, 191. 

receipt. Form of one, 49. 

Stolen note, or bill of exchange. The law respect- 
ing,34. 

Strahan, James. Has familiarly described the op- 
erations of country banking, 426. 

Stuckey, Vincent, the late. His opinion on invest- 
ments, 44. 

Supplementary- waste-books. Describe them, 179. 

Surplus fund, a. The nature of, 112; how appro- 
priated, ib. ; the advantages of, 113; how kept in 
the books, 169 ; amount of among the joint-stock 
banks, 303-305. 

funds. Administration of a bank with re 



456 



gard to the employment of, 41. 

Suspension of the Act of 1844. Was its condemna- 
tion, 63 ; may be suspended again, 76. 

Swedish bill. The form of one, 39. 

System. A want of, has caused the ruin of some 
banks, 117 ; a banker should observe, 16. 

Table. Showing the number of days the different 
denomination of notes remain in circulation, 189; 
showing the relative value of gold in London, 
Paris, Hamburgh, and Amsterdam, 221 ; table of 
English money reduced into foreign, 222 ; table 
of the terms on which government annuities are 
granted for £ 30 and under, 230 ; comparative 
view of the expectation of life according to dif- 
ferent tables of mortality, 231 ; of the circulation 
of notes by the branches of the Bank of England, 
239; ditto, of drafts, ib. ; amount of transactions 
in the clearing, 256, 257 ; capital, profits, divi 
dends, and surplus fund of the London and West- 



Alphabetical Index. 



minster Bank, 269; ditto, of the London Joint- 
stock Bank, 273; ditto of the Union Bankof Lon- 
don, 275 ; ditto of the Commercial Bank of London, 
*'*. ; of the affairs of all the London joint-stock 
banks. 280 ; of stamp-duties on country notes, 
234 ; reduction of the fixed issue of notes in Eng- 
land, 291 ; circulation of the private and joint- 
stock banks from 1845 to 1843, 294; of all the 
country joint-stock banks in England, 302 ; the 
joint-stock banks that have stopped, 305; those 
that have wound up, 306 ; those that have stopped 
and resumed, 307; those that have merged in 
other banks, ib. ; banks of Scotland in 1826, 
314; banks since formed, ib. ; existing banks in 
Scotland, 315 ; changes in Scotch banks, ib. ; 
circulation of notes in Scotland, 1834 to 1839, 
327 ; ditto in 1846 to 1848, ib. ; notes and gold, 
1842 to 1847, 323 ; circulation of each bank during 
1848, 329 ; ditto in March 1849, 330 ; of the banks 
of Belfast, 371 ; circulation of notes in Ireland, 
373 ; returns from the banks of issue in Ireland, 
379 ; circulation and coin in Ireland, ib. 

Taking accounts from other banks, 19, 59. 

Talents, banking. As rare and as important as 
those necessary to obtain eminence in any other 
pursuit, 13. 

Taxes. On the transfer of property, are pernicious, 
343 ; restrictions on banks are taxes on the pub- 
lic, 328. 

Taylor's Notes on Life. Quotation from, on mon- 
ey, 13; respecting loans, 25. 

Statesman, quoted. On decisiveness, 13; 

on the choice of instruments, 14 ; the correspond- 
ence between goodness and wisdom, 131 ; on the 
salaries of clerks, 134; on the promotion of 
clerks, 138. 

Teller's department in a bank, 136. 

Temper, hasty. A defect in a banker, 13 ; is tried 
by being kept waiting a long time at a banker's 
counter, 123. 

Terms. Used in book-keeping, 154. 

Tester, an old coin. Why so called, 223. 

Testimonials. To be received with caution, 131 ; 
may be negatively useful, ib. 

Till. The amount of cash a banker keeps in his till, 
how regulated, 42. 

Time. A banker should know how to economize, 
15 ; modes of doing this, 16 ; time saved in keep- 
ing a banker, 426. 

bargains on the stock exchange explained, 

50. 

■ is saved. By the employment of assistants, 

15; by methodical habits. 16; by the shortening 
of interviews, ib. ; by a banker having general 
principles, 18. 

Tipperary Joint-stock bank, 372; its arrangement 
with the Bank of Ireland, ib. ; its branches, 373. 

Tradesman. Saves trouble in keeping a banker, 5. 

Training. Of clerks for higher offices, 144; their 
number should be proportionate to their work, 
145 ; their labor should be so apportioned as that 
each office should be a training for the one above 
it. ib. ; they should have reasonable holidays, 
when the junior should do the work of his sen- 
ior, 145 ; they should all be exercised at the daily 
balance, 146; those in training for managers 
should be assigned those duties which are the 
most intellectual, 146 ; should not receive too 
many minute instructions, 148. 

Transfer of stock, 191 ; in Ireland, 333. 

register. Describe it, 172; deed of trans- 
fer, form of, 154. 

1 ransmission of money. Effected by banks, 4, 284. 

Travellers, commercial. Derive advantages from 
banks, 5. 

Trial paper. What is it ? 170. 

Troy weight. Gold and silver weighed by, 195. 

Truth. Cases in which public companies should 
especially adhere to, 395. 



Ulster Banking Company, at Belfast. Its forma 
tion, 371 ; statement of its affairs, id. ; and 
branches, ib. 

Uncharitable. Public companies should not be so 
in their judgment of each other, 421. 

Union Bank of London. Its formation, 274; its 
capital, profits, dividends, and surplus fund, 275 : 
its prospectus, ib. 

Union Guarantee and Life Assurance Company, 
135. 

Exchange Company, Glasgow, 351. 

United States of America. Their population, and 
the number, capital, and circulation of all their 
banks, 450. See America. 

Universality, a moral. Differs from one that is 
metaphysical or physical, 413. 

Unjust charges aeainst banks of issue. Prevented 
by the act of 1844, 288. 

Unpaid-list. Describe the book so called, 160. 

Unsanctified property. Is transient, and is not to 
be envied, 422, 423. 

Unsuccessful companies. Should inquire if they 
have properly discharged their moral and religious 
duties, 423. 

Usury. In what cases a usurious consideration viti- 
ates a bill of exchange, 33 ; present laws of usury, 
ib. 

Utility of banking. Banks are places of security 
for money, 3 ; interest allowed on deposits, ib. ; 
make advances to people who want to borrow, 4 ; 
transmit money from one part of the country to 
another, ib. ; supply the kind of currency that is 
required, 4 ; there is a great saving of time in 
money transactions, 5; saves expense to mer- 
chants and others who keep bankers, ib. ; are ref- 
erees as to respectability, 6; are a means of ob- 
taining information about parties, ib. ; supply a 
record of annual expenditures, 6; are a secure 
place of deposit for deeds, papers, or other prop- 
erty, 7; means of obtaining useful information as 
to monetary transactions, ib. ; have a powerful in- 
Euence on the rr^rals of society, 7. 

Ventilation. An important consideration in the 
construction of a bank, 127. 

Virtue. Always associated with wisdom, 131. 

Virtues, commercial. Bankers are the public con- 
servators of, 7 ; virtues that produce wealth, 416. 

Wages. Those who pay, derive advantages from 
bunks, 5 ; laws by which they are governed, 132. 

Waste-books. Received-Waste-Book, describe it, 
155; who keeps this book? 156; how do you en- 
ter Bankof England notes? cheques? country 
notes and coins ? 155 ; how is it ruled in the hori- 
zontal system, and how does it check itself? 176. 
Paid- Waste- Book. How is it ruled? 156; when a 
cheque is paid, how do you make the entry ? ib. ; 
how is this book ruled in the horizontal system ? 
177; how will it check itself? 178. Merchants' 
Waste-Book, 180. 

Waterston's Commercial Dictionary quoted, 192; 
his Compendium of Commerce referred to, 201, 
222. 

Wealth. Is a blessing, 415 ; its enjoyments not sin- 
ful, 416 ; the means of obtaining, ib. ; ill-gotten, 
is soon lost, 422. 

Weekly-balance, describe it, 170. 

returns, under the Act of 1844, 97. 



Weighing sovereigns. Troublesome, 5. 

West of Scotland Exchange Investment Company, 
351. 

Westminster Review of January. 1S41. An article 
written by the author published in, 62. See Cur- 
rency and Banking. 

Widows. Public companies should have funds for 
relieving, 403; mining and railway companies 
should relieve those whose husbands have been 
killed in their works, ib. 



457 



A Treatise on Banking . 



Wife. Should examine the banker's account when 
the husband is too lazy to do so, 430 ; should have 
a separate account in her own name for domestic 
expenses, 428 ; her acceptance of a bill is not 
binding on the husband unless she had his au 
thority to act as his agent, 34. 

Winding-up Act, 1848. An Act for winding up the 
affairs of trading companies, including joint- 
stock banks, 310. 

Wisdom. More necessary than talents in a banker, 
12 ; implies prudence and discretion, 14. ; to 
hearken unto counsel, a proof of, 424. 

Wisely to act. More difficult to a banker in a season 
of speculation than in a season of pressure, 57. 

Wool speculators. Banks have lost money through 
advances to, 116. 



Worship, public. Public companies should sup- 
port, 40o. 

Wright & Co., private bankers, in Henrietta-street 
Convent-garden, Their premises now occupied 
by the Commercial Bank of London, 275 ; some 
of the partners engaged as managers of the West- 
ern Branch of the London Joint-stock Bank, 271. 

Writer. A good one should be appointed to -write 
up the customer's books, 143. 

Writing well. Importance of, 151. 

masters. Their mode of teaching, 151. 



Young men of good character, 
cash credits, 333. 



How benefited by 



458 



BANKING IN THE UNITED STATES. 



BANKING IN THE UNITED STATES 



From the article on Banks in Appleton's New American Cyclopedia 
we take the following compendious account of — 

"Banking in the United States. — The Bank of North America. 
During the war of the revolution, the Congress of the United States ex- 
perienced great difficulty in providing the requisite means for carrying on 
hostilities. On May 10, 1775, soon after the battle of Lexington, Con- 
gress made preparation to issue continental paper — $2,000,000 of which 
were put in circulation on June 22 following. From month to month 
these issues, which in tne aggregate reached $300,000,000, depreciated 
until eventually they became entirely valueless, notwithstanding the pas- 
sage of laws making them a legal tender for the payment of debts.' On 
May 17, 1781, a plan of a national bank was submitted to Congress by 
Robert Morris of Pennsylvania, the principal provisions of which were as 
follows : — The capital to be $400,000, in shares of $400 each ; that each 
share be entitled to a vote for directors ; that there be twelve directors 
chosen from those entitled to vote, who at their first meeting shall choose 
one as president; that the directors meet quarterly; that the board be 
empowered from time to time to open new subscriptions for the purpose of 
increasing the capital of the bank ; statements to be made to the superin- 
tendent of the finances of America; that the bank notes payable on 
demand shall by law be made receivable in the duties and taxes of every 
State, and from the respective States by the treasury of the United States ; 
that the superintendent of the finances of America shall have a right at 
all times to examine into the affairs of the bank. On May 26, Congress 
passed the following : " Resolved, that Congress do approve of the plan 
for the establishment of a national bank in these United States, submitted 
for their consideration by Mr. R. Morris, May 17, 1781, and that they 
will promote and support the same by such ways and means, from time to 
time, as may appear necessary for the institution and consistent with the 
public good ; that the subscribers to the said bank shall be incorporated 
agreeably to the principles and terms of the plan under the name of ' The 
president, directors, and company, of the bank of North America/ so 
soon as the subscription shall be filled, the directors and president chosen, 
and application for that purpose made to Congress by the president and 
directors elected." On Dec. 31 following, Congress passed "an ordinance 
to incorporate the subscribers to the bank of North America/' The first 

461 



Banhing in the United States. 

president was Thomas Willing, and the bank formed a most important 
auxiliary in aid of the finances of the government to the final conclusion 
of the war. This institution was incorporated by the State of Pennsyl- 
vania, on April 18, 1782. The bank commenced business in Jan. 1782, 
with a capital of $400,000,— of which $254,000 had been subscribed by 
the government. In the year 1785, when an ill-feeling had arisen between 
the government of the State of Pennsylvania and the bank, the former 
repealed the charter which it had granted in 1782. The bank, however, 
continued its operations under the charter granted by the general govern- 
ment until in 1787, when it was rechartered by the State of Pennsylvania. 
It has, from time to time, been rechartered, and now has a capital of 
$1,000,000.— The First Bank of the United States. On the organization 
of the government of the United States under the constitution, Alex- 
ander Hamilton, in his masterly report on the finances in 1790, urged 
upon Congress the importance of establishing a bank of the United 
States. This measure, although it met with vigorous opposition in the 
house of representatives, passed that body Feb. 8, 1791, — having on 
Jan. 20 passed the senate with but slight resistance. The following 
abstract of the twelve clauses of the charter will give an idea of the 
act: 1. The capital shall be $10,000,000, to be divided into 25,000 
shares of $400 each. 2. Any person, copartnership, or body politic, may 
subscribe for such number of shares as he, she, or they may think proper, 
not exceeding 1,000, except as regards the subscription of the United 
States. The subscriptions, except those of the United States, shall be 
payable one-fourth in gold and silver, and the remaining three-fourths in 
certain six per cent, stocks of the United States. 3. The subscribers are 
incorporated under the name and style of " The president, directors, and 
company, of the bank of the United States," and to continue until March 
4, 1811. The bank is authorized to hold property of all kinds, inclusive 
of its capital, to the amount of $15,000,000. 4. Twenty-five directors 
are to be elected by a plurality of the votes cast, on the first Monday in 
January of each and every year, for one year only, and the directors are 
empowered to choose one of their number for president. 5. As soon as 
the sum of $400,000 is received on account of the subscriptions, in gold 
and silver, on proper notice being given, the bank may be organized. 
6. The directors are authorized to choose such other officers, clerks, and 
servants, as may be necessary for the bank, and shall otherwise manage 
the affairs of the bank. 7. This clause prescribes the " rules, restrictions, 
limitations, and provisions which shall form and be fundamental articles 
of the constitution of said corporation " 8. If the corporation or any 
person or persons, for or to the use of the same, shall buy or sell any 
goods, wares, or merchandise, whatsoever, contrary to the provisions of 
the act, such person or persons shall forfeit and lose treble the value of 
said goods, wares, and merchandise, one-half to the United States, and 
the remainder to the informer. 9. If the corporation shall loan to the 
government of the United States any sum of money to an amount exceed- 
ing $100,000, or to any State to an amount exceeding $50,000, or to any 
foreign prince or state (unless previously authorized by law), all and every 
person concerned in any way in causing the same to be loaned, shall for 

462 

I 



Banking in the United States. 

each and every offence, on conviction, forfeit and pay a sum treble the 
value of said loan or loans — one-fifth to the informer, and four-fifths to 
the United States. 10. Bills or notes of the bank payable in coin, shall 
be taken in payments to the United States. 11. The president of the 
United States may within eighteen months from April 1, 1791, cause a 
subscription to be made to the stock on behalf of the United States, for 
an amount not exceeding $2,000,000 to be paid out of the moneys which 
shall be borrowed by virtue of either of two certain acts providing for 
the payment of the debt of the United States, " borrowing from the bank 
an equal sum to be applied to the purposes for which the said moneys 
shall have been procured; reimbursable in ten years in equal annual 
instalments ; or at any time sooner, or in any greater proportions than 
the government may think fit. 12. That no other bank shall be estab- 
lished by any future law of the United States during the continuance of 
the corporation hereby created, for which the faith of the United States 
is hereby pledged. " The bank was established in Philadelphia, with 
branches at different points. The dividends of the bank averaged from 
eight to ten per cent, per annum — being much below those of the bank of 
North America in previous years ; which, in the words of a distinguished 
writer, now " gradually declined as other banks sprang into existence." 
In 1808, three years prior to the expiration of the charter, application was 
made to Congress for a renewal of the charter, and Mr. Gallatin, the able 
head of the treasury department, in obedience to a resolution of the Sen- 
ate, reported to Congress upon the memorial. Mr. Gallatin proposed some 
changes in the new act of incorporation, and highly recommended the rein- 
corporation of the bank, for which he gave his reasons in a clear and conclu- 
sive manner. Nothing, however, was done. From time to time, the matter 
was brought to the attention of Congress, until (Feb. 5, 1811) a bill was 
brought forward, but was, on Feb. 20, defeated by the casting vote of 
Vice-President Clinton. The bank was now obliged to wind up its affairs, 
which was done without at all convulsing the country. Within about 
eighteen months the stockholders had received eighty-eight per cent, on 
their stock. On eventually winding up the affairs, the assets yielded to 
the stockholders a premium over and above the par value of eight and one- 
half per cent. An application had previously been unsuccessfully made 
to the Legislature of Pennsylvania for the recharter of this institution, 
with a capital of $5,000,000.— Second Bank of the United States. Dur- 
ing the war of 1812-15, the government, which was embarrassed for the 
want of means, had received important aid from the banks. By this means 
the banks, with the exception of those in New England, were, in August 
and September, 1814, driven to a suspension of specie payments. The 
finances of the government were now in a terrible condition, when, on 
October 6, Alexander J. Dallas was called to the head of the treasury 
department. Never before had there been greater need of a master mind 
in that important office. Within less than a fortnight the new secretary 
communicated to Congress a report of extraordinary ability, in which he 
strongly recommended the establishment of a national bank, as the remedy 
required again to bring the finances into order. Various plans for a bank 
were brought forward in Congress, which resulted in nothing, until, on 

463 



Banking in the United States, 

January 20, 1815, a bill was passed. This bill was vetoed by President 
Madison, on the ground that it would not accomplish the objects rendered 
necessary by the state of the revenue, and the condition of the country. 
On April 3, 1816, however, a bill for a bank of the United States, which 
had previously passed the House of Representatives, was adopted by the 
Senate, and, receiving the signature of the President, became a law. The 
corporate title of this institution was "the president, directors, and com- 
pany of the bank of the United States. " Its capital was to be $35,000,- 
000, composed of 350,000 shares of $100 each, $7,000,000 of the stock 
was to be subscribed by the United States, and the remaining $28,000,000 
by individuals, companies, or corporations. The charter was to extend to 
March 3, 1836, and the bank was authorized to organize and commence 
business so soon as $8,400,000, exclusive of the subscription of the United 
States, was paid in. It was prohibited from lending on account of the 
United States more than $500,000, or to any State more than $50,000, or 
to any foreign prince or power any sum whatever, without the sanction of 
law previously being obtained. The bank went into operation January 7, 
1817, and through its agency the other banks throughout the country 
were enabled and induced to resume specie payments. — An unsuccessful 
effort was made in 1818, to repeal the charter on the ground of alleged 
mismanagement. President Jackson in his message of December, 1829, 
intimated that " constitutional difficulties" might interfere to prevent its 
recharter, and expressed the desire that Congress might take the matter 
into early consideration. Committees of both houses reported favorably 
to a recharter, but no application was made by the bank until the session 
of 1831-32. On July 4, 1832, a bill rechartering the bank was sent to 
the President, who, on the 10th of the same month, returned it with a 
message stating his objections. An effort now being made to pass the bill 
over the veto of the President, but without success, the bank on March 
3, 1836, ceased to act under the charter granted by the United States, but 
was in the same year rechartered by the State of Pennsylvania, with the 
same capital it had previously held. — On October 9, 1839, the bank of 
the United States suspended specie payments for a second time, having 
previously suspended in 1837, a measure which was adopted immediately 
by all the banks throughout the State of Pennsylvania, and eventually, 
with comparatively limited exception, throughout the country. On Jan. 
15, in compliance with an act of the Legislature, it resumed specie pay- 
ments — to suspend finally on February 4. On winding up its affairs, after 
payment of its debts, there remained nothing to its stockholders — the 
entire capital having been sunk, — The charter of banks throughout the 
States is wholly in the hands of the State authorities, and there are at 
present in existence, some 1,400 of these institutions, with their branches. 
In the New England States, comprising Maine, New Hampshire, Vermont, 
Massachusetts, Rhode Island, and Connecticut, there were in 1856-'57, 
507 banks and branches, with a capital of $114,611,752. The first bank 
which went regularly into operation in any of the States was established 
in the city of Boston, in 1784, where it still exists. In these States these 
institutions are generally established under special charters — although 
"free banking" laws have been enacted by Vermont, Massachusetts, and 

464 



Banking in the United States. 

Connecticut.- These laws have been in almost each instance a dead letter, 
comparatively little use having been made of them. An important ele- 
ment in New England banking, and one which is worthy of notice, is 
what is known as the " Suffolk bank system." This system was originally 
established by five of the Boston banks for the purpose of collecting the 
notes of foreign banks, appointing one member of a committee to superin- 
tend and manage the operations of the " associated banks." This com- 
mittee appointed an agent to receive and credit the amount of foreign 
money taken by these banks, and to keep an account of the same. All 
expenses of collection and keeping these accounts, as well as all losses on 
foreign money, were to be borne by these institutions in proportion to the 
amount received on deposit by each. The facilities thus granted in the 
deposit of these funds, and in their redemption, and the operations becom- 
ing more extended, the entire management of it was eventually placed in 
the hands of the Suffolk bank. Each bank made a stipulated deposit, in 
the aggregate amounting to $300,000, on which no interest was paid. As 
by degrees the country banks made their deposits, those of the other banks 
were from time to time reduced. The Suffolk bank now redeems at par 
the bills of all New England banks making deposits with it, and through 
the management of this agency is furnished with a working capital of 
$1,000,000, without any further cost than the salaries of the clerks em- 
ployed in the work. The annual amount of the redemptions made by this 
institution is about $350,000,000. The Bank of Mutual Redemption was 
chartered in 1855, with a view to taking in part the place of the Suffolk 
Bank, and has very recently gone into operation. — In September, 1856, 
the number of banks in operation in the State of New York was 311, 
with a capital of $96,381,301. Banking in this State commenced in the 
establishment of the Manhattan Bank in 1799. The entire country hav- 
ing passed through a period of disaster under which banks as well as indi- 
viduals and corporations generally were ruined in great numbers, the 
Legislature of this State was induced to pass in 1829 what was termed 
"The Safety Fund System." The principal features of this experiment 
were that each bank acting under it should contribute annually a sum 
equal to one-half of one per cent, on its capital to a common fund to be 
deposited with the treasurer of the State, as a bank fund until it should 
amount to three per cent, on the capital of the banks. Such part of this 
fund as might from time to time be necessary, was to be applied to the 
payment of the debts of each and every bank failing, which had con- 
tributed to it. Any diminution in the funds by such payments was again 
to be restored by annual payments as before. The failure of ten banks 
with liabilities to the amount of about $2,500,000, considerably more than 
the entire fund, caused it eventually to be abandoned. In 1838, what was 
termed a " free banking" law was enacted, which provided that any indi- 
vidual or association might engage in the business of banking on deposit- 
ing with the State comptroller the stocks of the United States or of any 
State, which were equal to five per, cent, stocks ; and bonds and mortgages 
on real estate worth twice the amount of the mortgages over and above all 
buildings thereon, and bearing interest at the rate of six per cent, per an- 
num. On receipt of such securities, the parties furnishing the same were 

465 



Banking in the United States. 

to receive an equal amount of notes, numbered, registered, and signed. 
Difficulties having arisen in converting these securities into funds sufficient 
to redeem the notes, in 1840 the Legislature revised the law so that the 
stocks of either the United States or of New York, or bonds and mort- 
gages were required as security. — Weekly returns of the condition of the 
banks in the city of New York are required to be published, and in Octo- 
ber, 1853, a clearing house was established in that city. " Free banking/' 
or general banking laws, have also been enacted with varied success, in 
the following States : New Jersey, Virginia, Indiana, Illinois, Wisconsin, 
Tennessee, Louisiana, and Alabama. During the recent session of the 
Legislature of Pennsylvania (1860) a general banking law has been passed 
which it is believed will greatly aid in the development of the industrial 
resources of that State, which have suffered severely from a want of suffi- 
cient banking capital. In all the remaining States of the Union, except 
in California and Arkansas, where no banks exist, they are chartered by 
special acts of the several legislatures. All legislation respecting these 
institutions in the District of Columbia is under the control of the Con- 
gress of the United States. In the autumn of 1857, nearly all of the 
banks from one end of the Union to the other suspended specie payments, 
in a majority of cases to resume within a few months, with but compara- 
tively little loss to either stock or note holders. Among those, however, 
which were unable to resume was the bank of Pennsylvania, in the city of 
Philadelphia, with a capital of SI, 875,000, which was compelled to make 
an assignment in February, 1858." 

The banking interest of the United States has attained an importance 
in the varied concerns of this widely-extended country, and is so inter- 
woven with all our commercial, manufacturing and agricultural pursuits, 
that it must be conceded that it is a great motive power in our condition 
of national prosperity, and secondary in its influence only to that of the 
government itself. And yet there are few subjects of a practical nature 
on which the people of the United States have so widely differed in 
opinion as upon the policy of banks and the substitution of a paper currency, 
based even upon coin, for one purely metallic. On one side, the zealous 
friends of banks have perhaps sometimes overrated the utility of paper 
credit; on the other side, their opponents, without distinguishing between 
the uses and abuses of banks, discerned, in these useful and indispensable 
auxiliaries to commerce, manufactures and agriculture, nothing but mis- 
chief, and regarded them as impeding the wealth of the nation, and even 
as injurious to its morals as well as dangerous to its liberties. Both parties, 
perceiving the glaring errors of their adversaries, have been strengthened 
in their own opinions, and as each party has alternately come into power, 
it has established or subverted, encouraged or rejected, the present bank- 
ing policy of the country. A comparison of the amounts of bank capital 
in several important years, from 1837 to 1860, will exhibit the fluctuations 
which have taken place during the last twenty years : — 

466 



Banking in the United States. 



Tears. 
1837 
1840 
1843 
1846 
1850 
1854 
1856 
1860 



Capital. 


Banks. 


Circulation. 


$290,772,000 


788 


8149,185,000 


358,442,000 


901 


106,968,000 


228,861,000 


691 


58,563,000 


196,894,000 


707 


105,552,000 


217,317,000 


824 


131,366,000 


301,376,000 


1,208 


204,689,000 


347,423,000 


1,371 


177,157,000 


425,982,000 


1,600 


190,000,000 



These banks had, in the corresponding years, specie in their vaults, 38, 
33, 33 J, 42, 45, 59 and 60 millions of dollars, and the amount of specie 
in circulation steadily increased from 35 to 191 millions, in addition 
thereto, according to the most reliable estimates, viz : — 



Tears. 










Deposits. 


Loans and discounts. 


1837 $127,397,000 


$525,115,000 


1840 










75,696,000 


462,806,000 


1843 










56,168,000 


254,544,000 


1846 










96,913,000 


312,114,000 


1850 










109,586,000 


364,204,000 


1854 










188,188,000 


607,287,000 


1856 










237,964,000 


634,183,000 


1859 










264,437,000 


755,233,000 



From the following table of the number of banks, amount of capital, 
and circulation, it will appear that the number of banks has doubled in a 
period of nearly twenty years ; while the capital and circulation have in- 
creased only about 30 per cent, in the same time, which ratio is not equal 
to the growth or increase in wealth of the country. 

Treasury Report. 



Years. 


Banks. 


Capital paid in. 


Circulation. 


Specie. 


1837 . 


. 758 


$290,000,000 


$149,000,000 


$37,900,000 


1838 . 


829 


319,000,000 


116,000,000 


... 


1839 . 


. 840 


327,000,000 


135,000,000 




1840 . 


. 907 


363,000,000 


107,000,000 




1841 . 


784 


313,000,000 


107,000,000 




1842 . 


692 


260,000,000 


83,000,000 




1843 . 


691 


228,000,000 


58,000,000 


33,000,000 


1844 . 


696 


210,000,000 


75,000,000 


... 


1845 . 


707 


206,000,000 


89,000,000 


... 


1846 . 


707 


196,000,000 


105,000,000 




1847 . 


715 


203,000,000 


105,000,000 




1848 . 


751 


204,000,000 


128,000,000 


46,300,000 


1849 . . 


782 


207,000,000 


114,000,000 




1850 . 


824 


217,000,000 


131,000,000 




1851 . 


879 


227,000,000 


155,000,000 


48,600,000 


1854 . . 


1,208 


301,000,000 


204,000,000 


59,400,000 


1855 . 


1,307 


332,000,000 


187,000,000 


59,300,000 


1857 . 


1,283 


370,000,000 


214,000,000 


58,300,000 


1858 . 


1,422 


394,000,000 


155,000,000 


74,412,000 


1859 . 


1,570 


398,000,000 
467 


180,595,000 


99,905,000 



Banking in the United States. 



Table shoiving the Number of Banks, Capital, Specie, etc., in the United 
States, made up to January 1, 1859. 



States. 


Banks. 


Capital. 


Specie. 


Circulation. 


Maine 


69 


$7,439,200 


$660,000 


$5,000,000 


New Hampshire 


52 


5,041.000 


300,000 


3,100,000 


Vermont . 


41 


3,860,000 


200,000 


3,700,000 


Massachusetts . 


176 ' 


62,553,000 


11,500,000 


21,000,000 


Rhode Island 


92 


20,302,700 


660,000 


3,400,000 


Connecticut 


71 


20,881,700 


1,000,000 


9,540,000 


New York 


298 


105,800,000 


29,800,000 


26,600,000 


New Jersey- 


48 


7,345,100 


900,000 


3,700,000 


Pennsylvania 


80 


25,627,000 


9,500,000 


13,000,000 


Delaware . 


12 


1,740,000 


250,000 


1,000,000 


Maryland . 


30 


12,150,000 


3,900,000 


4,700,000 


District of Columbia . 


5 


1,280,000 


300,000 


350,000 


Virginia . 


66 


14,940,000 


4,000,000 


12,000,000 


North Carolina . 


29 


6,591,000 


1,500,000 


4,500,600 


South Carolina . 


20 


14,888,000 


3,500,000 


7,600,000 


Georgia 


67 


10,430,000 


1,500,000 


5,000,000 


Alabama . 


7 


3,750,000 


2.000,000 


4,000,000 


Illinois 


58 


7,000,000 


630,000 


6,200,000 


Indiana 


40 


3,852,000 


1,270,000 


3,343,000 


Iowa ... 


8 


413,000 


200,000 


200,000 


Kansas 


1 


52,000 


10,000 


20,000 


Kentucky . 


43 


13,030,000 


5,000,000 


13,500,000 


Louisiana . 


18 


16,557,000 


16,500,000 


9,600,000 


Michigan . 


5 


1,200,000 


350,000 


1,000,000 


Minnesota 


1 


25,000 


5,000 


25,000 


Mississippi . • •. 


4 


836,000 


50,000 


1,000,000 


Missouri . 


20 


7,050,000 


1,500,000 


1,200,000 


Nebraska . 


6 


400,000 


100,000 


600,000 


Ohio .... 


53 


5,414,000 


1,270.000 


6,400,000 


Tennessee . 


50 


10,476,000 


2,000,000 


3,500,000 


Wisconsin 


100 
. 1,570 


8,060,000 


553,000 
$99,905,000 


4,200,000 


Total 


$398,963,700 


$180,575,000 



The following table of increase of bank deposits and circulation ; and of 
population in the United States, for each year since 1834, is from reliable 
data. The estimated increase of population between the years 1850 — 
1859, is based upon the increase for the ten years ending 1850. 



Jan. 1 


,1834 


u 


1835 


ti 


1836 


u 


1837 


ti 


1838 


u 


1839 


a 


1840 


" 


1841 


a 


1842 


" 


1843 


it 


1844 


" 


1845 


" 


1846 


U 


1847 


it 


1848 


a 


1849 



Deposits and 
circulation. 

$170,506,000 
186,773,000 
255,405,000 
276,583,000 
200,830,000 
225,411,000 
182,665,000 
172,180,000 
146,142,000 
114,732,000 
159,718,000 
177,629,000 
202,465,000 
197,312,000 
231,733,000 
205,922,000 
468 



Population. 

14,413,000 
14,814,000 
15,230,000 
15,663,000 
16,113,000 
16,581,000 
17,069,000 
17,577,000 
18,105,000 
18,656,000 
19,229,000 
19,825,000 
20,446,000 
21,091,000 
21,764,000 
22,463,000 



Money to each 
person. 

$11 83 
12 61 

16 77 

17 66 

12 46 

13 59 
10 70 

9 79 
8 07 
6 15 
8 31 

8 96 

9 90 
9 35 

10 65 
9 17 



Banking in the United States. 



Jan. 1 


, 1850 


« 


1851 


it 


1852 


u 


1853 


It 


1854 


It 


1855 


a 


1856 


it 


1857 


a 


1858 


n 


1859 



Deposits and 
circulation. 


Population. 


Money to each, 
person. 


$240,953,000 


23,191,000 


$10 39 


284,122,000 


23,935,000 


11 87 


328,906,000 


24,693,000 


13 31 


348,094,000 


25,564,000 


13 66 


392,877,000 


26,249,000 


14 97 


377,352,000 


27,047,000 


13 95 


408,453,000 


27,858,000 


14 66 


445,130,000 


28,682,000 


15 52 


341,140,000 


29,520,000 


11 56 


452,875,000 


30,370,000 


14 91 



Average for 26 years 



$11 95 



This table is both instructive and suggestive. It shows at a glance the 
bank movement from 1834 to the present time ; for it must be borne in 
mind that the figures given under the head of " deposits and circulation" 
express the precise extent to which the banks made use of their credit, by- 
loans, discounts and other investments in excess of capital, at the different 
periods named. It will be seen that the movement has been very irregu- 
lar — at some periods almost spasmodic. The highest degree of expansion, 
as compared with population, was reached in 1837. This was followed by 
a contraction, which reached its lowest limit in 1843. Then ensued an- 
other expansion, which, with slight oscillations, continued until arrested 
by the violent panic of 1857. This again led to a sudden and extreme 
contraction, but which, in turn, has been followed by an equally sudden 
and extreme expansion. The banks, it appears, were almost as much ex- 
tended on the 1st January, 1859, as they were before the panic of 1857. 



MAINE. 

The first bank in Maine was established in the year 1814. The fol- 
lowing is a list of existing sound banks ; the dates of charter and capital 
all being of earlier incorporation than 1835. 



Names of banks. 


Where located. 


When chartered. 


Capital. 


Augusta Bank 


Augusta 


Aug. 28, 1814 


$83,000 


Bank of Cumberland . 


Portland 


March 19, 1835 


200,000 


Calais Bank . 


Calais 


April 1, 1831 


100,000 


Canal Bank . 


Portland 


Feb. 19, 1825 


600,000 


Casco Bank . 


Portland 


Feb. 18, 1824 


600,000 


Eastern Bank 


Bangor . 


March 21, 1835 


100,000 


Freeman's Bank . 


Augusta 


March 2, 1833 


100,000 


Gardiner Bank 


Gardiner 


Jan. 31, 1814 


50,000 


Lincoln Bank 


Bath 


June 16, 1816 


200,000 


Manufacturers' Bank . 


Saco 


Feb. 23, 1825 


100,000 


Manufacturers' and Traders' 


Bk. Portland 


Feb. 27, 1832 


250,000 


Merchants' Bank 


Portland 


Feb. 19, 1835 


225,000 


South Berwick Bank . 


South Berwick 


Jan. 31, 1823 


100,000 


Thomaston Bank . 


Thomaston 


Feb. 22, 1825 


50,000 


Ticonic 


Waterville 


April 1, 1831 


125,000 


York .... 


Saco 


April 1, 1831 


125,000 



At present there are 69 banks active; 2 in process of closing. The 
aggregate capital of the State — about $7,300,000. The charters of all the 

469 



Banking in tlie United States. 

banks expire Oct. 1, 1867, and are renewed by Legislature in a lump. 
They pay a State tax of i of 1 per cent, and are obliged to retain 5 per 
cent of specie in their vaults. 

The banks of Maine, as a whole, are reliable, and enjoy the confidence 
of the community ; the stock standing, in most cases, above par. 

The Legislature object to chartering more new institutions, and prefer 
to increase old ones, yet there is a tendency to reduce capital rather than 
to increase ; with the exception of Portland, where a new bank, the In- 
ternational, has lately been organized under most favorable auspices. 

The State opposes the chartering of banks with a capital less than 
$100,000, and some corporations have been chartered with this amount, 
and the next winter reduced their capital to $50,000. 

In Maine a law prevails forbidding either officer of a bank leaving blank 
signatures to certificates of stock for the use of the other, also a law re- 
quiring banks which may have surrendered their charters, or are under 
injunction, or in hands of receivers to destroy their plates, or rather to 
send them to the Secretary of State to be destroyed. The loans are re- 
stricted to double the capital. 

By a new law, it is necessary to prove that a demand has been made 
for the payment of a note or draft — at a specified place — before the com- 
mencement of a suit. 

Banks are allowed no higher rate than 6 per cent. ; but they have a 
way of keeping the exchange between two given places very high ! and 
are allowed to charge the existing rate of exchange ! 



NEW HAMPSHIRE. 

In New Hampshire there were, at the close of the year 1859, fifty-one 
banks in operation, with a combined capital of $5,941,000, an average of 
a little less than $100,000 each : the largest capital being $200,000. 

The comparative condition of these banks in September, 1857, and Decem- 
ber, 1859, was as follows : — 



Capital 
Circulation 
Deposits . 
Miscellaneous . 


Liabilities. 
Resources. 


Sept., 1S57. 
$4,041,000 
3,469,000 
1,101,000 
1,324,000 


Dec, 1859. 

$5,041,000 

2,136,000 

1,274,000 

361,000 


Total 



Loans 

Specie on hand 
Deposits in Boston, &c. 
Bank notes, &c. 


$9,935,000 

$8,731,000 
226,000 
835,000 
143,000 


$8,812,000 

$8,459,000* 
286,000 

67,000 



Total .... $9,935,000 $8,812,000 

* Including deposits in Boston to meet the redemption of bills. 

470 



Banking in the United States. 

All the banks in New Hampshire transact business under special char- 
ters. The free banking system has never been adopted in the State. Few 
failures have taken place, and the increase of banks has been less than in 
other New England States. 

VERMONT. 

The banks in Vermont are forty-one in number, with an aggregate 
capital of $4,082,000, the largest being $300,000, and one only having 
that amount of capital. The banks have special charters. 

At the close of the year 1858, there were in Vermont forty-one banks 
in operation, whose condition, compared with the close of 1859, was as 
follows : — 

Liabilities. 

Dec, 1S59. Dec, 1S58. 

Capital $4,082,000 $4,041,500 

Circulation 1,948,000 3,015,000 

Deposits 629,000 677,000 

Surplus, &c 301,000 241,500 

Total .... $6,960,000 $7,975,000 
Resources. 

Loans \ Qfl - fl7 non $6,170,000 

Deposits in Boston, New York, &c. J *°> 0D '> UUU 843,000 

Specie 170,000 178,000 

Miscellaneous 223,000 784,000 

Total .... 86,960,000 $7,975,000 



MASSACHUSETTS. 

In twenty years the additions to the banking capital of Massachusetts, 
have been fully fifty per cent., equivalent now to more than fifty dollars 
for each inhabitant of the State. In the year 1851, a general banking law 
was established in Massachusetts, somewhat similar to that of New York; 
the first institution established under this system, commenced operations 
in the year 1858. There are now four of this character, all in Boston. 

The following table shows the liabilities and resources of the banks of 
Massachusetts at the close of October, 1858 and 1859, separating those 
of the city, 36 in number, from those of the country, 134 in number : — 



1858. 



1859. 



Liabilities. 
Capital 
Circulation . 
Profits . 
Due other banks 
Deposits 

Total, 1858-9 
Resources. 



Boston. 
$33,072,500 
7,142,395 
3,263,943 
7,346,856 
23,410,209 



Country. 

$28,747,325 

13,697,042 

2,767,888 

307,378 

8,665,796 



Boston. 
$33,931,700 
7,012,878 
3,298,854 
6,571, 4S4 
20,436,447 



Country. 

$28,587,500 

15,074,043 

2,885,977 

365,557 

8, SI 2, 590 



Total. 
$64,510,200 

22,086,921 
6,154,832 
6,937,042 

29,249,037 



$74,235,903 $54,1S5,429 $73,251,364 $55,695,669 $128,947,033 



Specie . 
Real estate . 
Notes of other banks 
Bank balances 
Loans . 



$9,230,241 

879,262 

4,452,311 

3,973,265 

55,700,710 



$1,882,474 

705,622 

481,116 

5,213,980 

45,902,236 



$5,803,175 

884,838 

4,70S,562 

2,965,359 

58,889,428 



$1,279,471 

716,233 

474.S97 

4,247,171 

48,527,894 



$7,533,642 

1,601,072 

5,1S3,459 

7,212,530 

107,417,323 



Total, 1858-9 

2 F 



$74,235,791 $54,185,429 $73,251,364 $55,695,699 $128,947,033 

471 



Banking in the United States. 



EHODE ISLAND. 

The banks in this State are under special charters. Numerous failures 
have occurred among those that were started as merely banks of circula- 
tion. Rhode Island has a larger bank capital, in proportion to its popula- 
tion, than any other State — at present upwards of $20,000,000; with 
thirty-eight banks in Providence, and fifty-three in the interior. 

The annexed is the statement of the Rhode Island banks, showing their 
condition on the 6th May, and 17 November, 1859. 







May, 1859. 




November, 1859 






' 




.? 


38 


53 


91 




Providence 
banks. 


Out of Provi- 
dence. 


Total. 


Banks in 
Providence. 


Country 
banks. 


Total K. I. 


Capital . 


$14,763,550 


$5,624,319 


$20,387,869 


$15,095,850 


$5,641,410 


$20,737,260 


Circulation 


1,009,163 


1,538,161 


3.547,324 


2,098,610 


1,582,885 


3,681,496 


Deposits 


2,421,901 


860,359 


3,282,260 


2,732,3S0 


919,711 


3,652,091 


Due banks 


946,691 


85,359 


1,032,050 


1,043,439 


89,057 


1,132,496 


Loans . 


18,597,814 


7,468,005 


26,065,819 


19,322,775 


7,631,125 


26,953,900 


Specie . 


378,196 


164,296 


542,492 


334,249 


137,S95 


472,145 


Bank notes 


814,763 


134,014 


948,777 


925,401 


154,592 


1,079,993 


Due by banks 


660,869 


398,940 


1,059,809 


669,502 


368,755 


1,038,258 



CONNECTICUT. 

Capital, Circulation, Specie, and Loans of the Banks of Connecticut, from 
the year 1837 to 1858. From the Bank Commissioners' Report. 



Year. 


Capital. 


Circulation. 


Specie. 


Loans. 


Total resources. 


1837 . . 


. $8,744,000 


$3,998,000 


$415,000 


$13,246,000 


$15,691,000 


1838 . 


. 8,754,000 


1,920,000 


535,000 


9,769,000 


12,302, 000 


1839 . 


. 8,832,000 


3,987,000 


502,000 


12,286,000 


14,942,000 


1840 . 


. 8,878,000 


2,325,000 


499,000 


10,428,000 


12,950,000 


1841 . . 


. 8,873,000 


2,784,000 


454,000 


10,944,000 


13,886,000 


1842 . . 


. 8,876,000 


2,555,000 


471,000 


10,683,000 


13,465 /9 000 


1843 . . 


. 8,580,000 


2,379,000 


438,000 


9,798,000 


12,914,000 


1844 . 


. 8,292,000 


3,490,000 


455,000 


10,842,000 


14,472,000 


1845 . 


. 8,359,000 


4,102,000 


453,000 


12,477,000 


15,243,000 


1846 . 


. 8,475,000 


4,565,000 


481,000 


13,032,000 


15,892,000 


1847 . 


. 8,605,000 


4,437,000 


462,000 


12,781,000 


15,784,000 


1848 . 


. 8,726,000 


4,891,000 


517,000 


13,424,000 


16,808,000 


1849 . 


. 8,985,000 


4,511,000 


575,000 


13,740,000 


16,947,000 


1850 . 


. 9,907,000 


5,253,000 


640,000 


15,607,000 


19,122,000 


1851 . 


. 10,575,000 


6,639,000 


774,000 


18,190,000 


21,999,000 


1852 . 


. 12,509,000 


7,118,000 


825,000 


20,552,000 


25,226,000 


1853 . 


. 13,950,000 


11,217,000 


1,259,000 


25,833,000 


32,098,000 


1854 . 


. 15,641,000 


11,207,000 


1,206,000 


27,397,000 


34,716,000 


1855 . 


. . 17,145,000 


6,833,000 


812,000 


23,999,000 


31,338,000 


1856 . 


. . 1S,S52,000 


9,197,000 


1,006,000 


27,201,000 


36,202,000 


1857 . 


. . 20,505,000 


9,690,000 


1,121,000 


32,639,000 


39,123,000 


1858 . 


. . 21,017,000 


4,249,000 


1,064,000 


25,610,000 


32,276,000 


1860 . 


. . 21,951,000 


9,500,000 


913,000 


28,374,000 


30,373,000 



At the close of the year 1859, there were seventy-two banks in opera- 
tion in the State of Connecticut; twelve of which were in the city of 

472 



Banking in the United States. 

Hartford, and eight in New Haven ; the largest capital of any one bank 
being $1,285,000. 

In Connecticut the banks have been heretofore established by special 
charters. A general banking law was passed some few years ago, but its 
workings were not considered beneficial,- and at the end of the year 1859, 
the few banks that had been framed under the general banking law, had 
been all subject to special charters. There have been few bank failures 
in this State. The present system and all the banks under it, are subject 
to the special supervision of the Bank Commissioners and a healthy check 
is thus placed upon undue expansion. 

The Bank Commissioners in their report for the year 1858, on the 
condition of the banks of circulation, make the following recommendations 
and other remarks: — 

1st. A reduction of the circulation of the banks to 50 or 75 per cent, 
upon the capital actually paid in. 

2d. The requirement of a specific amount of specie, based upon capital, 
and not upon circulation. 

3d. A reduction of the percentage of discounts, out of the State, to 25 
per cent, of the capital of the bank. 

4th. To limit the amount of interest to be paid on deposits to 4 per 
cent. 

Under the present law the specie lines of the banks are very irregular, 
and the fluctuations are not as carefully observed as they should be j but 
fix the amount to a given percentage upon capital, and not only the banks 
but the public will always know what amount is at all times required. No 
per cent, of specie is now required by law for deposits, and should a bank 
abandon the use of its own bills, there is no law requiring them to keep 
specie at all. 



NEW YORK. 

In the early history of banking in New York, since 1800, politics and 
finance were so intermingled that the question of granting a bank charter 
was a matter of direct issue between the two political parties of the day • 
but prior to that period, in the establishment of the first bank, this state 
of partisan excitement did not exist, but in lieu of it, there was a jealousy 
in regard to the incorporation of moneyed institutions ; and after they were 
established, great caution was required to avoid the perils and mischief 
which their opponents had predicted would inevitably ensue. Fortunately, 
however, the first bank established in New York was managed with such 
ability and discretion, that it disarmed all opposition, and became an im- 
portant auxiliary to the government of the United States, by a loan of 
$400,000 at five per cent., thereby securing in its early career great popu- 
larity, as the bank owed no favor to the government, and had no interested 
motives in loaning the money. The organization of this bank (the Bank 
of New York) was, however, an association for banking purposes, rather 
than a regular bank. It commenced business in 1784 (its first application 
for a charter having been unsuccessful), without a charter, and discounted 

473 



Banking in the United States. 

short paper at 6 per cent, per annum, which rate was advanced to 7 per 
cent, three years afterwards. In 1791 a charter was granted, " the act 
of incorporation having been drawn by General Alexander Hamilton, 
which has not been materially altered to this day." Its authorized capi- 
tal was $1,000,000, but it is now treble that amount. 

In 1799 the Manhattan Company was incorporated, with an unlimited 
charter, and was regarded as a partisan triumph ; and from this period 
all projected moneyed institutions in the city of New York were advocated 
or opposed on political considerations only, and thus finance and politics 
became blended in the contest, which continued until the question of the 
construction of the Erie Canal diverted the gladiature of zealous politicians 
to this new area of strife. In 1801 the whole number of banks in the 
State was but five, whose authorized capitals were 84,722,000. In 1803 
the New York State Bank at Albany was chartered, and in 1805 the Mer- 
chants' Bank in New York, having commenced business, however, two 
years previous to its being chartered. There were then, in 1805, but 
seven banks in New York State, the aggregate of whose capitals was only 
$5,430,000 j but it has now 300 banks, having a capital of $96,000,000. 
In 1810 the Mechanics' Bank was chartered; in 1811, the Union, and 
the Farmers and Mechanics' in Albany; in 1812, the Phoenix, the City, 
and the Bank of America. The projectors of this latter bank originally 
applied for a capital of $6,000,000, to supply the place of the United 
States Bank, whose charter had so recently expired, and offered for the 
charter a bonus to the State of $400,000 unconditionally : $100,000 in 
ten years, and $100,000 in twenty years, if, at the expiration of those 
terms, there should be no additional banking capital authorized by the 
Assembly in the city of New York. They further offered to loan the 
State $1,000,000, at 5 per cent., for the construction of the Erie Canal, 
and $1,000,000 more at 6 per cent., to be reloaned to farmers and others 
on landed security. 

The first innovation which was tried commenced in New York with the 
adoption of the " safety fund" system in 1829. It required from each 
bank an annual contribution of half per cent, of its capital to a common 
fund, to be deposited with the State Treasurer as a " bank fund," until it 
amounted to 3 per cent, of the capital of each bank, and was to be applied 
to the payment of the debts of any bank which might become insolvent 
which had contributed to the same; and in case the fund was at any time 
diminished by payment therefrom, the banks were again required to make 
their annual contributions, till each had in deposit the 3 per cent, on its 
capital stock. For a series of years this system was regarded with favor, 
but the sudden failure of 10 banks, with capitals amounting to $2,559,000, 
occasioned a loss of $1,548,560 for redemption of circulation, and 
$1,010,376 for the payment of the other liabilities of these insolvent 
banks. 

After nine years' trial of the " safety fund" scheme, it was virtually 
abandoned, another experiment was substituted in 1838, by the passage 
of the " free bank" law. By this system " every individual and associa- 
tion was authorized to engage in the business of banking; and on deposit- 
ing with the controller the stocks of the United States, the stocks of any 

474 



Banking in the United States. 

State which should be or be made equal to a 5 per cent, stock, or such 
stocks and bonds, and mortgages to the same amount on improved, pro- 
ductive, and unincumbered real estate, worth double the amount secured 
by the mortgage, over and above all buildings thereon, and bearing an 
interest thereon of 6 per cent, per annum, the controller was required to 
deliver to such individual or association an equal amount of bank notes 
for circulation, duly numbered, registered and signed at his office. " No 
specific amount was required from individual bankers before they com- 
menced operations, nor were the stockholders liable in their individual 
capacity. 

The following tabular statement exhibits the banking capital of New 
York during this period of twenty years : 

Tears. Banks. Capital. 

1801 5 $4,720,000 

1805 7 • 5,430,000 

1811 8 7,522,760 

1815 26 18,916,818 

1816 27 18,766,756 

1820 33 18,988,744 

but we have no means of ascertaining the amount of circulation or specie. 
The estimates of the whole country for 1815 were 208 banks, $82,260,000 
capital, $70,000,000 to $110,000,000 circulation, $15,500,000 specie. 

The Present Banking System of New York. — The banks of New 
York are divided into four classes. I. The Chartered Banks, whose char- 
ters were granted at various times between the years 1784 and 1829. II. 
The Safety Fund Banks, chartered from 1829 to 1838. III. Banking As- 
sociations, of which there are forty-nine in New York city. IV. Individual 
Banks, of which there were thirty-four in the State in December, 1858, 
but none in the city at present. Of those established in the city, all the 
charters have expired, except five, viz : 1. The Manhattan Co., esta- 
blished in 1799, charter perpetual. 2. The New York Dry Dock Bank, 
charter unlimited. 3. The Leather Manufacturers' Bank, charter granted 
in April, 1832, and will expire in 1863. 4. The Seventh Ward Bank, 
charter granted in 1831, and will expire in 1863. 5. Bank of the State 
of New York, charter granted in 1836, and will expire in 1866. Of the 
old banks of the city whose charters have expired, there are sixteen now 
doing business under the general law of 1838. These are : 1. The Bank 
of New York, established in 1791, and the first bank established in the 
State. 2. The Merchants' Bank, 1805-1857. 3. The Mechanics' Bank, 
1810-1855. 4. The Union Bank, 1811-1853. 5. The Bank of America, 
1812-1853. 6. The city Bank, 1812-1852. 7. The Phoenix Bank, 
1812-1854. 8. North River Bank, 1821-1842. 9. Tradesmen's Bank, 
1823-1855. 10. Chemical Bank, 1824-1844. 11. Fulton Bank, 1824- 
1844. 12. Merchants' Exchange Bank, 1828-1849. 13. The National 
Bank of which Mr. Albert Gallatin was the President, 1829-1857. 14. 
The Butchers and Drovers' Bank, 1830-1853. 15. The Greenwich Bank, 
1830-1855. 16. The Mechanics and Traders' Bank, 1830-1857. 

The increased business of the banks of New York city, according to 

475 



Banking in the United States. 



their quarterly returns, is shown by the annexed summary, including 
capital, bank balances, and individual deposits : — 



Date. Capital. Bank balances. 


Deposits. 


Loans. Bank balances 


Specie. 


Sept., 1851 . . $34,603,000 
Sept., 1852 . . 36,791,000 
June, 1853 . . 44,196,000 
Sept., 1855 . . 48,683,000 
March, 1857 . . 59,702,000 
June, 1858 . . 77,041,000 
Sept., 1859 . . 68,933,000 


$10,777,000 
22,434,000 
24,961,000 
18,525,000 
22,888,000 
28,275,000 
18,379,000 


$36,957,000 
49,608,000 
59,078,000 
58,657,000 
70,760,000 
74,806,000 
75,497,000 


$70,516,000 
94,355,000 
102,714,000 
103,924,000 
122,790,000 
127,662,000 
115,708,000 


$4,178,000 
4,228,000 
6,872,000 
4,919,000 
5,419,000 
5,338,000 
4,714,000 


$6,032,000 
3,702,000 
12,174,000 
9,747,000 
10,786,000 
31,704,000 
20,559,000 


The ratio of the specie to the deposits and circulation 


was : — 




September, 1859 
June, 1859 








24.56 
25.58 


June, 1858 


. 


. 


. 


38.72 



The more active movements of the banks as to loans (including stocks 
and mortgages) due from other banks, and specie reserve at the same dates 
as above, are shown by the annexed summary : — 



Year- 



New York City Banks- 


-1854 to 1860. 




"j c+ TflTI 


Circulation and 


Population of city 


Money to each 


L"~ifit O iXILt 


deposits. 


and suburbs. 


inhabitant. 


1854 . 


$69,911,000 


765,777 


$91 30 


1855 . 


72,032,000 


796,000 


90 40 


1856 . 


91,438,000 


837,000 


109 10 


1857 . 


104,448,000 


878,000 


118 80 


1858 . 


85,125,000 


919,000 


92 50 


1859 . 


119,144,000 


965,000 


123 30 


1860 . 


100,000,000 


1,016,000 


98 40 



By referring to the tables here presented, and comparing the bank 
movement in New York with that in the country at large, it will be seen 
that the recent expansion, like all others that have occurred since the era 
of the United States Bank, originated at New York. It could not, in 
fact, have originated elsewhere; for the position of the banks in that city, 
as the centre of the commerce and finances of the Union, gives them a 
supremacy which, without any effort of their own, effectually controls the 
movement of all other banks in this country. The banks of New York 
city began to enlarge their discounts in December, 1857, just after their 
prostration by the panic of that year. They continued to move in this 
direction with rapid strides, until, on the 1st of January, 1859, they were 
found to be more extended than they were at any time preceding the re- 
action of 1857, or at any other period, having inflated the currency of 
this city until it reached the rate of $123 30 to each inhabitant. The 
banks elsewhere soon found the usual restraints removed, by a favorable 
condition of the exchanges on New York, and promptly followed the ex- 
ample of the banks here; and up to 1st January, 1859, had, as already 
stated, enlarged the currency of the United States to a point 25 per cent, 
above its mean. 

476 



Banking in the United States. 



Liabilities and Resources of the Banks of the State of New York — June, 
1856, 1857, 1858, 1859. 



Capital 

Circulation 

Profits . 

Due banks 

Due others 

Due Treasurer State of N. 

Due depositors 

Miscellaneous 



Liabilities. 

June 14, 1S56. June 6, 1S57. June 19, 1S58. June 25, 1S59. 

$92,334,172 $103,954,777 $109,340,541 $110,605,776 

30,705,084 32,395,892 24,079,193 26,759,915 

12,945,901 13,949,030 13,563,650 13,524,418 

29,730,686 27,319,817 34,290,766 30,175.329 

1,031,641 1,010,575 874,838 1.418J294 

3,254,421 3,254,877 2,716,034 1,439,980 

96,267,287 104,350,426 98,046,875 99,597,772 

2,184,393 1,754,886 1,567,974 1,643,320 



Total 


$268,453,585 


$287,990,280 


$284,479,871 


$285,164,804 




Resources. 








June, 1856. 


June, 1857. 


June, 1858. 


June, 1S39. 


Loans and discounts 


$174,141,775 


$190,808,832 


$178,853,145 


$185,027,449 


Overdrafts . 


498,978 


.507,137 


331,602 


369,455 


Due from banks . 


12,255,098 


11,643,830 


13,569,231 


13,158,254 


Real estate . 


6,724,163 


7,423,015 


7,899,958 


8,481,879 


Specie 


18,510,835 


14,370,434 


33,597,211 


22,207,782 


Cash items . 


20,158,335 


23,737,436 


15,019,241 


17,132,630 


Stocks and promissory notes 


23,511,223 


25,747,472 


23,097,661 


26,934,786 


Bonds and mortgages . 


8,381,501 


9,299,794 


8,615,365 


8,104,474 


Bills of banks 


3,087,102 


3,094,293 


1,919,905 


2,264,148 


Loss and expense account . 


1,191,994 


1,362,923 


1,576,602 


1,483,947 



Total 



$268,461,004 $2S7,994,166 $2S4,479,921 $285,164,804 



Liabilities and Resources of the Neio York City Banks — 1851 to 1858. 

Liabilities. 







Sept., 1851. 


Sept. 1, 1S52. 


June 11, 18.33. 


Capital 




$34,603,100 


$36,791,750 


$44,196,793 


Profits .... 




5,348,666 


5,464,511 


5,674,823 


Circulation . 




272,880 


256,834 


996,431 


" registered . 




7,103,234 


8,421,830 


8,087,675 


Due Treasurer State of New York 


221,840 


187,200 


213,111 


Due depositors 




36,957,870 


49,608,800 


59,078,171 


Due banks, &c. 




10,777,040 


22,434,214 


24,961,931 


Miscellaneous 




241,547 

$95,526,177 


332,096 


971,374 


Total 


$123,497,235 


$144,180,309 




Sept. 29, 1S55. 


March 14, 1857. 


June 19, 1868. 


Sept. 25, 185S. 


Capital 


$48,683,750 


$59,703,583 


$67,041,182 


$67,734,755 


Profits .... 


6,037,517 


6,611,258 


8,091,406 


7,275,747 


Circulation . 

registered . 
Due Treasurer State of N. Y 


177,228 \ 
7,411,128] 
527,902 


- 8,538,951 


7,080,396 


7,582,598 


227,561 


443,685 


402,225 


Due depositors 


58,657,430 


70,760,939 


74,373,067 


75,604,637 


Due banks, <fcc. 


18,525,760 


22,888,578 


28,275,873 


27,161,144 


Miscellaneous 


974,160 


490,232 


420,722 


759,694 



Total 



$141,294,875 $169,221,102 $185,726,331 $186,520,800 

477 



Banking in the United States. 

Resources. 

Sept., 1851. Sept. 1, 1852. June 11, 1853. 

Loans . . . $65,426,353 $88,815,464 $95,530,656 

Real estate . ' 2,397,980 2,702,410 3,457,544 

Bonds and stocks 5,090,158 5,539,815 7,183,925 

Loss and expense account .... 392,327 404,950 433,459 

Overdrafts . . . , . . . . 42,040 41,210 63,965 

Specie . 6,032,463 8,702,895 12,174,509 

Cash items . . . . . . . 10,900,135 11,866,284 16,383,916 

Banknotes 1,065,842 1,195,842 2,080,214 

Due from banks 4,178,879 4,228,210 6,872,121 



Total 




. $95,526,177 


$123,497,235 


$144,180,309 




Sept. 29, 1855. 


March 14, 1857. 


June 19, 1858. 


Sept. 25, 1858. 


Loans .... 


$97,365,163 


$113,813,017 


$118,299,388 


$122,274,879 


Real estate . 


4,159,030 


5,254,401 


5,815,368 


5,941,304 


Bonds and stocks . 


6,559,238 


8,977,507 


9,362,613 


11,715,736 


Loss and expense account 


518,676 


335,893 


559,766 


505,036 


Overdrafts . 


66,358 


74,842 


51,734 


49,193 


Specie .... 


9,747,608 


10,786,375 


31,704,814 


28,271,641 


Cash items . 


16,581,856 


22,968,837 


13,689,788 


12,584,100 


Bank notes . 


1,379,568 


1,590,406 


904,804 


1,116,528 


Due from banks . 


4,919,383 


5,419,824 


5,338,056 


4,045,577 



Total . . . $141,294,875 $169,221,102 $185,726,331 $186,520,800 

" It has at all times been the legislative policy of this State, from my 
earliest recollection, to grant no charters beyond the reach of legislation. 
With many special charters there is, I believe, but a single one which 
claims exemption from this provision, and that is the Manhattan Com- 
pany, chartered in 1799, ostensibly for the purpose of supplying the city 
of New York with pure and wholesome water, but which, when it came 
to the practical exercise of its corporate functions, proved to have con- 
cealed in its stealthy verbiage a perpetual bank charter. 

" The history of this charter doubtless served to arouse legislative 
watchfulness and suspicion, and charters have since contained the declara- 
tory provision that ' The legislature may, at any time, alter, modify or 
repeal this act.' Under this clause two charters, at least, were promptly 
repealed, years since — one for being engaged in usurious practices, and 
another for having issued notes or checks contrary to the provisions of its 
charter. Yet, notwithstanding this summary treatment, so long as special 
charters were granted, the legislature was annually besieged to increase 
the number, and the stock was so eagerly sought for that millions were 
subscribed where but thousands were to be distributed."* 

Each bank in the city of New York is required by law to publish, " on 
the morning of every Tuesday, in a newspaper printed in the said city, a 
statement under the oath of the President or Cashier, showing the aver- 
age amount of loans and discounts, specie, deposits and circulation, for 
the next preceding week." The object of this law, which went into effect 
on the 1st of August, 1853 (two months before the organization of the 
Clearing House), was to check the tendency to a dangerous expansion of 
bank loans. While it answered the purpose measurably, it proved the 

* Letters from Hon. D. S. Dickinson, July, 1859. 

478 



Banking in the United States. 

inadequacy of legislative action of itself to correct the evil. The law 
was satisfied with the publication merely of the statement. It neither 
imposed penalties nor indicated any relation to be preserved between the 
amount of loans and that of specie. It did not compel banks to liquidate 
between themselves. A bank might show a creditable average of coin, 
whilst carrying a discreditable average of debt — enough, if paid, to ex- 
haust the last dime in its vaults. In reality, nearly all the force and value 
of the Weekly Statement is due to its incorporation with the records of 
the Clearing House. These have given it the stamp of truth, which it 
had not before. There is no longer a possibility of " fixing it up" so as 
to give a false show of the condition of a bank. It must tell " the truth, 
the whole truth, and nothing but the truth." 

New York City Bank Averages for Six Tears. 

The bank statement for the week ending July 23d, 1859, completed 
the sixth year during which the banks of this city have published a 
weekly statement of the daily average condition of their loans and dis- 
counts, specie, circulation and deposits. We present a statement of the 
average per day of the several items for each of the six years, with the 
daily average of the exchanges for those years, and the amount of "net" 
or undrawn deposits : — 







Average per Day for the Years ending 










Loans and 
discounts. 


Specie. 


Circulation. 


Deposits. 


Exchanges. 


Net depo- 
sits. 


uly 29 
" 28, 
" 26, 
" 25, 
" 24, 
" 23, 


1854 . 

1855 . 

1856 . 

1857 . 

1858 . 

1859 . 


. $90,195,805 
. 90,059,561 
. 100,4SS,046 
. 111,174,665 
. 107,834,676 
. 126,002,110 


$11,477,186 
14,144,527 
13,390,193 
11,885,647 
25,449,940 
26,678,220 


$9,228,388 
7,738,840 
7,975,405 
8,604,582 
7,226,475 
7,980,259 


$61,534,623 
72,602,679 
84,634,249 
92,499,444 
86,472,940 

107,48S,334 


$19,351,328 
17,275,885 
21,493,380 
27,009,386 
16,364,377 
20,343,S65 


$42,183,295 
55,326,794 
63,140, S69 
65,490,058 
70,108,563 
87,144,469 



The first weekly statement was made August 6th, 1853. Bank bal- 
ances were not included in the deposits until June 6th, 1854, at which 
date the deposits were apparently increased $10,000,000. The Clearing 
House was commenced on the 11th of October, 1853, and the average 
daily exchanges given in the above table, for the year ending July 29th, 
1854, were for nine months and seventeen days. Considering the circu- 
lation and net deposits as representing the total liability of the banks, and 
adding $10,000,000 to the net deposits and circulation for the year ending 
July 29th, 1854, as the average of bank balances, we present, in the fol- 
lowing statement, the daily average liability, with the percentage of specie 
held by the banks, for each year : — 



Average L 



ability per day for the Years ending 



July 29, 1854 


. $61,411,683 


Specie, 18.69 per cent 


" 28, 1855 


63,065,634 


" 22.43 


" 26, 1856 


71,116,274 


" 18.82 " 


" 25, 1857 


74,094,640 


" 16.04 " 


11 24, 1858 


77,335,038 


« 32.91 " 


" 23, 1859 


95,124,728 


" 28.04 " 



The following table gives the statements for the weeks in each of the 

479 



Banking in the United States. 



six years corresponding to that ending July 30th, 1859, with the per- 
centage of coin to net liability, at each period : — 



Loans 

Specie 

Circulation . 
Net deposits . 

Per cent, of specie to net de- 
posits and circulation 



July 28, 
1S55. 


July 26, 
1856. 


August 1, 
1857. 


July 31, 

1858. 


July 30, 
1859. 


$99,083,799 
15,920,976 
7,409,498 
66,070,296 


$111,346,589 
13,910,848 
8,3S6,2S5 
72,381,020 


$120,597,050 

12,918,014 

8,665,422 

68,682,088 


$119,850,456 
35,712,107 
7,408,365 
91,145,873 


$119,347,412 

20,764,564 

8,214,959 

74,474,895 



21 7-10 



17 2-10 



16 7-10 



-10 



25 1-10 



After the above Dates the 



Lowest line of net 

liability was in 
1S55, November 17 

1856, " 10 

1857, October 10 



Amount. 

$61,559,319 
65,880,108 
50,783,453 



Liability 
decreased. 
$11,930,508 
14,887,197 
26,564,057 



Loss of 
specie. 
$4,618,059 
1,657,111 
1,441,720 



Loans 
reduced. 

$7,053,879 
7,792,139 

18,679,480 



Lowest discount 
line. 
Nov. 17, $92,029,920 
" 10, 102,508,632 
" 28, 94,963,130 



1S58, 
1859. 



3 



93,742,120 4,812,118 7,178,921 Incr. $3,809,241 Oct. 10, 123,599,249 



Largest discount line 

" specie reserve 
" liability . . 



ISr 1 ^' •K&2K2 I deduced at this date $10,621,513 



16. 
January 22, 
January 15, 



129,968,925 
29,472,056 
103,042,486 



8,707,492 
20,352,632 



The economy of time and labor effected by the Clearing House system 
is stated by the manager, Mr. George D. Lyman, in an appendix to Cleve- 
land's Banking Laws of New York, as follows : — 

" On the day when the Clearing House began business, about twenty- 
seven hundred open, active accounts on the ledgers of the associated banks 
were balanced — the most of them for the first time, and all of them, finally. 
The business which had rendered necessary this large number of accounts 
was thenceforth accomplished more quickly, with less annoyance to bank 
officers, and with greater safety to all concerned. The results may be 
briefly enumerated as follows : — 

" First. — The condensation for each bank of forty-eight balances into 
one, and the settlement of that balance without a movement of specie. 
" Secondly. — The avoidance of numerous accounts, entries and post- 

" Thirdly. — Great saving of time to the porters, and of risk in making 
exchanges and settlements from bank to bank. 

" Fourthly. — Relief from a vast amount of labor and annoyance to 
which the great army of cashiers, tellers and book-keepers were subjected 
under the old system. 

" Fifthly. — The liberation of the associated banks from all injurious 
dependence on each other. 

" Sixthly. — The absolute facility afforded by the books of the Clearing 
House for knowing at all times the management and standing of every 
bank in the Association." 

480 



Banking in the United States. 



Aggregate Transactions of the New York Clearing- House for six Years, 
ending October, 1859 ; to which we add the Progressive Increase of 
Taxation and Taxable Property in that City, and the Aggregate Im- 
ports and Exports of the State. 



1854 
1855 
1856 

1857 
1858 
1859 



Exchanges. 

$5,750,455,987 06 
5,362,912,098 38 
6,906,213,328 37 
8,333,226,718 06 
4,756,664,386 09 
6,448,005,956 01 



Balances paid. 

$297,411,493 69 
289,694,137 14 
334,714,489 33 
365,313,901 69 
314,238,910 60 
363,984,682 56 



Taxation, 

city of 
New York. 

$4,845,386 
5,843,822 
7,075.425 
8,066,566 
8,621,096 
9,860,926 



$37,557,478,473 97 $1,965,357,615 01 



Exchanges for six years — October 1853, to October, 1859 
Balances paid for six years — " " " 



Taxable pro- 
perty, city of 
New York. 

$462,021,000 
486,998,000 
510,740,000 
520,545,000 
531,194,000 
551,923,000 



Aggregate for- 
eign imports 
and exports 
of the State. 

$317,900,000 
278,500,000 
329,200,000 
371,300,000 
286,800,000 



Total 



$37,557,478,473 97 
1,965,357,615 01 

$39,522,836,088 98 



NEW JERSEY. 

The banks of this State have pursued a moderate course, checked by 
New York on one hand and Philadelphia on the other. There were at the 
close of 1859, fifty-one banks in the State, with a capital of 87,996,000, 
or about $156,000 each on an average, while the average of the New York 
country banks is less than $110,000. 

In 1805 there were 2 banks, whose capital amounted to $1,000,000 
In 1811 " 3 " " 794,000 

In 1815 " 11 " " 2,121,000 

In 1820 " 14 " " 2,130,000 

In 1850, a general banking law was passed in New Jersey, which, like 
those adopted in other States, has subsequently been revised and amended. 
The new banks established, or at least most of them under the general law, 
instead of being legitimate banks of discount as well as of issue, are sim- 
ply manufactories of paper money, for the benefit of their owners residing 
in other States. 



Liabilities and Resources of the Banks in New Jersey — 1855 to 1859. 

Liabilities. 





Jan. 1S55. 


Oct. 1S57. 


Oct. 1&58. 


Jan. 1859. 


Capital . 


. $8,985,950 


$7,292,774 


$7,395,981 


$7,359,122 


Circulation 


2,842,032 


3,758,062 


4,113,864 


4,054,770 


Deposits . 


2,723,181 


3,767,741 


4,998,266 


4,239,235 


Dividends unpaid . 




77,963 


92,142 


88,032 


Due other banks 


443,656 


626,140 


700,061 


770,935 


Surplus . 


901,710 


1,250,373 


1,293,780 


1,332,165 


Miscellaneous . 




63,915 


44,678 


48,850 



Total 



$15,896,529 $16,836,968 $18,638,772 $17,893,109 

481 



Banking in the United States. 





Resources. 








Jan. 1855. 


Oct. 1857. 


Oct. 1858. 


Jan. 1859. 


Loans 


$7,746,920 


$12,756,391 


$13,681,904 


$12,449,460 


Specie . 


738,595 


855,802 


993,077 


952,231 


Due by other banks 


1,959,952 


1,357,780 


1,769,230 


2,223,936 


Notes and checks . 


... 


476,755 


374,664 


578,006 


Real estate 


221,650 


350,518 


404,822 


421,793 


Stocks and mortgages 


138,015 


640,960 


803,343 


785,524 


Miscellaneous . 


5,091,397 


398,762 


611,932 


482,159 



anks. 


Capital. 


26 


$3,834,816 


25 


3,497,061 


24 


3,565,283 


25 


4,019,900 


24 


4,080,815 


14 Free 


1,066,926 


36 


5,522,060 



Total . . . $15,896,529 $16,836,968 $18,638,772 $17,893,109 

The following statement shows the practical working of the general 
banking law : — 

Years. 

1841 

1849 

1850 

1852 

1854 

1854 

1856 



PENNSYLVANIA. 

The first bank which was established in this State, was the Bank of 
North America, which was chartered by Congress on the 31st December, 

1781, with a capital not to exceed ten millions of dollars, and without any 
limitation of duration. The charter was confirmed by the State in April, 

1782, and it commenced its operations upon a capital, paid in, of $400,- 
000, and as the country was deficient in notes of circulation, and its credit 
stood high, it was enabled to extend its issues vastly beyond its capital. 
The extensive circulation of the notes of the bank, occasioned by the dis- 
bursements of the government, which was a heavy borrower, emboldened 
its directors to overstep the bounds of discretion. The channels of circu- 
lation soon became surcharged, and the public, beginning to doubt the 
ability of the bank to redeem its notes on presentation, they were returned 
so rapidly for payment, that it was compelled to call upon its debtors for 
payment also. This reduction of loans occasioned a general pressure for 
money, bankruptcies, usurious extortions, the disappearance of specie, and 
the impossibility of procuring money at the legal rates of interest. Peti- 
tions were shortly afterwards presented to the Legislature for a repeal of 
the charter, which was granted on the 13th September, 1785, but the 
bank continued its business, claiming the right to do so, under the charter 
granted by Congress; but in March, 1787, the Legislature revived its 
charter, limiting its capital to $2,000,000, of which only $830,000 were 
paid in, and its duration to fourteen years. This bank is now one of the 
most successful in the city of Philadelphia, having a capital of $1,000,000, 
and paying annually ten per cent, dividend. 

The system of letters of credit, for use in China, etc., was inaugurated 
by the Bank of the United States under the presidency of Mr. Nicholas 

482 



Banking in the United States. 



In 1805 


<< 


3 


In 1811 


a 


4 


In 1815 


«c 


42 


In 1820 


<< 


36 


In 1837 


a 


25 


In 1845 


tt 


51 


In 1850 


tt 


54 


In 1856 


tt 


57 


In 1859 


tt 


88 



Biddle. On a review of the tabular statements of the capitals of the 
banks in Pennsylvania, there does not appear, with the exeeption of 1814, 
when the forty-one banks were chartered, and in 1837— '38, any extraordi- 
nary augmentation of banking capital. 

Capital. 

In 1801 there were 2 banks $5,000,000 

7,000,000 
6,153,000 
15,068,000 
14,681,000 
58,000,000 
16,154,000 
18,966,000 
21,281,000 
25,500,000 

" The banking system of the State was made the subject of much dis- 
cussion by the Board of Trade during the year previous to that for which 
we now report, and the interest felt in the reforms which have at length 
been inaugurated, requires here an expression of satisfaction at the 
general result. Most important securities for both the city and country 
circulation of the banks have been devised and put in operation by our 
associated city banks, and the acknowledgments of this Board are emi- 
nently due to the authors of these reforms. A clearing house has been 
established for the city banks, which has been in operation since the first 
of June, 1858, and which will effectually guard the banks from being 
drawn into the vortex of any insolvent institution at any future time, 
while also warning the public in time of the existence of any degree of 
weakness likely to endanger depositors or note holders. The clearing 
house system was originally intended merely to facilitate the adjustment 
of balances between the several banks, and as a measure of economical 
management simply. It is, in practice, much more than this, and a bank 
which is in any way unsound, or likely to endanger its creditors, is almost 
immediately detected by its inability to pay its balances, and by its dis- 
credit at the clearing house. The public are warned in time, therefore ; 
no bank is weakened by yielding to advances likely to compromise itself, 
and the public generally are as well protected as it is possible for any of 
the creditors of the bank to be. No case of such general weakening of 
the public confidence in all the banks of the city, because of the known 
insolvency of one, can again occur, as has twice most disastrously hap- 
pened here, while the clearing house system is in vigorous operation."* 

All of the banks now (1860) in operation in this State exist by virtue 
of special charters; but at its recent session the Legislature enacted the 
following law, which we give in full : — 



* Annual Report of the Philadelphia Board of Trade, 1859. 
483 



Banking in the United States. 

tfREE BANKING LAW OF PENNSYLVANIA. 

Approved March 31, 1860. 

An Act to establish a system of Free Banking in Pennsylvania, and to secure 
the Public against loss from Insolvent Banks. 

Section 1. Be it enacted by the Senate and House of Representatives 
of the Commonwealth of Pennsylvania in General Assembly met, and it is 
hereby enacted by the authority of the same, That any partnership or asso- 
ciation of persons, not less than five, in pursuance of this act may establish 
banks of discount, deposit and circulation, subject to the terms, conditions, 
contingencies, restrictions and liabilities hereinafter prescribed; but the 
capital of no bank, established under the provisions of this act, shall ex- 
ceed one million of dollars, or be less than fifty thousand dollars. 

Section 2. That whenever any such partnership or association of citi- 
zens desire to establish a bank, or increase its capital, they shall make a 
certificate, to be hereinafter described, under their hands and seals, and 
shall cause a notice of the same to be advertised, for at least six months, 
in at least three newspapers, one published at the seat of government of 
the State, and the other two in the city or county where such bank is to 
be located, one of which shall be in the German language, if such paper 
is published ; which certificate, after due notice of the same shall be pub- 
lished as aforesaid, shall be submitted to, and examined by, the attorney 
general of the commonwealth, and by him certified to be properly drawn 
and signed, and that the notice of the same has been duly and correctly 
advertised according to law, and that the certificate and the published no- 
tice are in conformity with the constitution and the laws of this common- 
wealth ; for which service the attorney general shall be entitled to a fee 
of five dollars. 

Section 3. That the certificate approved by the attorney general shall 
specify — 

I. The name of such persons, partnership or association, and the names 
and residences of each member of any partnership or association. 

II. The place of business, designating the city, town or village, and 
the county where the contemplated bank is to be located, and which loca- 
tion shall not be changed, without the consent of the auditor general, after 
six months' public notice. 

III. The amount of capital stock of such association, the number of 
shares into which the same shall be divided, together with any contem- 
plated increase of capital stock. 

IV. The names and places of residence of the shareholders, and the 
number of shares held by each of them respectively. 

V. That when the certificate is so certified by the attorney general 
as aforesaid, the same shall be recorded in the office for the recording of 
deeds in the city or county where the bank is to be located, in a suitable 
book to be kept for that purpose, and a copy of said certificate, duly certi- 
fied by the recorder, shall be filed in the office of the auditor general ; and 
the auditor general, upon the receipt of such certified copy, shall enter 
thereon, and upon the original certificate to be retained by such partner- 

484 



Banking in the United States. 

ship or banking association, the day and date of the filing of the same, 
and shall, moreover, cause a true copy of such certificate to be recorded, 
at length, in a suitable book to be kept in his office for that purpose, for 
which he shall receive the sum of five dollars ; and the governor shall, 
upon the certified copy of the aforesaid certificate being produced before 
him, cause letters patent, under the great seal of the commonwealth, to 
be issued to the said bank or corporation. 

Section 4. That every association authorized to carry on the business 
of banking, under this act, shall be held and adjudged to be a body cor- 
porate, with succession, for the term of twenty years from the .date of 
letters patent, and thereafter only so long as is necessary to close the 
affairs of such bank, and by its corporate name shall be competent to con- 
tract, prosecute and defend actions of every description, as fully as natural 
persons ; and process against such bank may be served upon its president 
or cashier, or by leaving a copy thereof at their usual place of business, 
during the usual hours of business ; they shall have power to make and 
adopt a corporate seal, and to change and renew the same at pleasure ; 
and shall, during the term of twenty years from the date aforesaid, if the 
said bank shall so long comply with the provisions of this act, have power 
to loan money, buy, sell and discount bills of exchange, notes, and all 
other written evidences of debt, except such as it shall be prohibited by 
this act from buying, selling or discounting, receive deposits, buy and sell 
gold and silver coin and bullion, collect and pay over money, and transact 
every such other business as shall appertain to the business of banking, 
subject, however, to the provisions of this act ; may acquire and hold and 
convey such real estate as may be necessary to the proper transaction of 
business, and no more ; but may, however, acquire title to any real estate 
pledged to secure any debt previously contracted, or purchased on an 
execution or order of sale to satisfy any judgment or decree in its favor, 
or which shall have been conveyed to it in payment of any previous debt, 
but shall hold any real estate so held no longer than is necessary to secure 
the payment of said debt, interest and costs, for the collection and secur- 
ing of the debt for which it was acquired : Provided however, That if at 
any time before selling the same, the last preceding owner, his, her or 
their heirs, shall tender to said bank a sum sufficient to secure the pay- 
ment of such debt, with interest, costs, taxes and other necessary charges 
for the collection or securing of said debt, for which said real estate was 
acquired, then the bank shall release to such owner, his, her or their 
heirs, all right, title and interest therein : Provided further. That said 
last preceding owner or owners, their heirs or attorneys, shall have the 
right of redemption of said real estate for the term of twelve months 
after sale, upon paying debt, interest and costs. 

Section 5. That it shall be the duty of the auditor general to report, 
annually, to the Legislature, within three days from the commencement 
of the session, a summary of the state and condition of every incorporated 
bank or banking institution, and every private bank from which reports 
have been received for the preceding year, at the several dates to which 
such reports refer, with an abstract of the whole amount of banking 
capital returned by them, of the whole amount of their debts and liabili- 

485 



Banking in the United States. 

ties, specifying, particularly, the amount of circulating notes outstanding, 
and the total amount of means and resources, specifying the amount of 
specie held by them at the time of the several returns, and such other 
information in relation to said banks and associations as, in his judgment, 
may be useful ; the said report shall also contain a statement of the 
amount of expenses of his office, on account of banks, during the year, 
and the amount, if any, for which the treasury shall be in advance ; such 
number of copies of said report, for the use of the Legislature, as it may 
direct, and two hundred and fifty copies for the use of his department, 
shall be printed, by the public printer, in readiness for distribution within 
twenty days from the commencement of the legislative session. 

Section 6. That any increase of capital, alteration or addition, shall be 
advertised as is provided for by the second section of this act, for six 
months, and then submitted to the stockholders at a general meeting called 
for that purpose, and by them approved ; and further, any such increase 
of capital, alteration or addition, shall also be approved by the auditor 
general ; and if approved by the same, shall be attested and recorded, and 
published, as is provided in the original formation of said bank. 

Section 7. That the auditor general of this commonwealth shall cause 
to be engraved and printed, in the best manner to guard against counter- 
feiting, such quantity of circulating notes, in blank, of different denomina- 
tions, not less than five dollars, each of which are authorized to be issued 
by the banks of this commonwealth incorporated under this act, as he 
may deem necessary, from time to time, to carry into effect the provisions 
of this act ; said notes shall be countersigned by the auditor general, or 
by a clerk appointed by him for such purpose, numbered and registered 
in his office, in manner as directed by him in a book kept for the pur- 
pose; and all notes issued by him shall be uniform, and they shall have 
stamped on them, secured by the deposit of public stock. 

Section 8. That the plates, dies and materials to be procured by the 
auditor general, for the printing and making of such bills or notes for 
circulation, shall remain in his custody and under his direction, and the 
expenses necessarily incurred in executing the provisions of this act, shall 
be audited by the auditor general, and paid out of the treasury on his 
written order ; and for the purpose of reimbursing the same, the auditor 
general is hereby authorized and required to charge against, and receive 
from, each bank or banking association applying for such notes for circu- 
lation, such rate per centum thereon as will repay the expense necessarily 
incurred, as before directed. 

Section 9. That the auditor general, with the approval of the governor, 
shall devise a seal, with a suitable inscription, for this branch of his duties, 
independent of the seal of office now used by said officer as auditor general, 
a description of which, with a certificate of approval by the governor, shall 
be filed in the office of the secretary of the commonwealth, with an impres- 
sion thereof, which shall thereupon become his seal of office, as set forth 
in this act, and the same may be renewed when necessary ; every certifi- 
cate; assignment and conveyance, executed by the said auditor general in 
pursuance of any authority conferred on him by this act, and sealed with 
the aforesaid seal, shall be received in evidence, and may be recorded in 

486 



Banking in the United States. 

the proper recording offices, in the same manner and with like effect as a 
deed regularly acknowledged or proved before any officer authorized to 
take proof or acknowledgments of deeds ; and all copies of papers in the 
office of said auditor general, that have any relation to any of the banks, 
or banking associations of this State, certified by him, and authenticated 
by the said seal, shall in all cases be in evidence equally and in like man- 
ner as the original. 

Section 10. That banks established under this act, upon legally as- 
signing to and depositing with the auditor general the bonds or evidences 
of debt of this commonwealth or of the United States, shall be entitled to 
receive an amount of such circulating notes in blank, of the denominations 
such as they may require, numbered, registered, countersigned, and stamped 
as is herein provided for, the bonds and stocks to be taken at five per cent, 
less than their market value : Provided, That the same is not above par, 
and that the amount to be invested under the provisions of this act, shall 
not exceed the amount of capital now employed in corporate banking in 
this State more than fifteen millions of dollars, until otherwise provided. 

Section 11. That the auditor general may, at his discretion, exchange 
such bonds or evidences of debt, or of any of them, on receiving other ap- 
proved bonds or evidences of debt of this commonwealth or of the United 
States, of equal amount; and when any sum of the principal of the bonds 
or evidences of debt which have been transferred to the auditor general, 
shall be paid to him, he shall notify the bank or banking association which 
transferred the same, of such payment, and shall pay the same to such 
bank or banking association, on receiving other approved bonds or evi- 
dences of debt of this commonwealth or of the United States, of an equal 
amount, or on returning an equal amount of the bills or notes delivered by 
him to such association for circulation, which bills, when delivered, shall 
be cancelled; and all bonds or evidences of debt received by the auditor 
general, under the provisions of this section, shall be subject to all the 
regulations and restrictions prescribed by the different sections of this act. 

Section 12. That the bank or banking association transferring bonds 
or evidences of debt to the auditor general may receive the interest that 
accrues thereon, unless default shall be made in paying the bills or notes 
to be countersigned as aforesaid, or unless the bonds or evidences of debt 
so pledged shall become insufficient security for the payment of such bills 
or notes ; and the auditor general, together with the State treasurer and 
secretary of the commonwealth, shall, on the first Mondays of March and 
September, in each year, make an average of the value of the State and 
United States stocks, pledged for the redemption of notes issued to the 
several banks and banking institutions incorporated under the provisions 
of this act, which average shall be made on the value of the stocks afore- 
said, during the last preceding six months ; which average value shall be 
the declared value for the six months succeeding; and if the declared value 
of the stocks aforesaid shall exceed the value of the same at the previous 
average, then, and in that case, the auditor general is authorized to issue 
to each bank or banking institution, incorporated under the provisions of 
this act, an additional amount of notes or bills ; but in no case shall the 
whole amount of the notes or bills issued to any bank or banking institu- 
2 G 487 



Banking in the United States. 

tion exceed the amount of five per centum less than the declared value ; 
but if the stocks deposited as aforesaid shall become depreciated in value, 
so that the averages of the six months shall be below the value of the se- 
curities at the last declared value, then the auditor general shall thereupon 
immediately notify the President or Cashier of any bank or banking insti- 
tution, to place in his hands, within fifteen days, such additional amount 
of securities of the description named in this act, or to return to his office 
such an amount of the circulation of the bank as will preserve the value 
of the securities deposited, and secure, in full, the notes or bills issued as 
aforesaid ; and if such bank or banking institution shall refuse or neglect 
to comply with the requirements made by the auditor general, then, and 
in that case, he shall, without delay, proceed to wind up the affairs of such 
bank or banking institution, in the manner prescribed by the several pro- 
visions of this act. 

Section 13. That the affairs of every bank shall be managed by not 
less than five nor more than eleven directors, and they shall choose one of 
their number as president of the bank ; every director shall be a citizen of 
this commonwealth ; each director shall own, in his own name and right, 
at least one per centum of the capital stock of the bank, up to two hundred 
thousand dollars, and the half of one per centum on its capital stock over 
two hundred thousand dollars ; each director shall take an oath that he 
will, so far as the duty devolves on him, diligently and honestly administer 
the affairs of the bank, and not knowingly violate or willingly permit to 
be violated, any of the provisions of this act, and that he is the bona fide 
owner, in his own right, of the stock standing in his name on the books 
of the bank, and that the same is not hypothecated, or in any way pledged 
as security for any loan obtained or debt owing ; which oath, subscribed 
by himself and certified by the officer before whom it was taken, shall be 
filed and carefully preserved in the office of the recorder of deeds in the 
county in which the bank is located ; but no person shall be president, 
cashier or director, or either, of more than one bank at the same time. 

Section 14. That the directors of any bank first elected shall hold 
their places until the first Monday in November next thereafter, and until 
their successors shall be elected and qualified ; all subsequent elections 
shall be held annually, upon the first Monday in November, and the di- 
rectors so elected shall hold their places for one year, and until their 
successors are elected and qualified ; but any director removing from the 
State, or ceasing to be the owner of the requisite amount of stock, shall 
thereby vacate his place ; any vacancy in the board shall be filled by ap- 
pointment by the remaining directors; the director so appointed shall 
hold his place until the next annual election; and if, from any cause, an 
election of directors should not be made at the time appointed, the bank 
shall not, for that cause, be dissolved, but an election may be held on any 
subsequent day, thirty days' notice thereof having been given in a news- 
paper printed in the county where the bank is located. 

Section 15. That in all elections for directors, and in deciding all 
questions at meetings of the stockholders, each share shall entitle the 
holder thereof to one vote ; stockholders may vote by proxy, duly author- 
ized in writing, if dated within thirty days ; but no officer, clerk, teller or 

488 



Banking in the United States. 

book-keeper of the bank shall act as proxy, and no stockholder, whose 
liability to the bank is past due and unpaid, shall be allowed to vote. 

Section 16. That no bank shall be permitted to commence or carry on 
the business of banking under this act, unless at least twenty per centum 
of the capital stock of each bank shall be paid in gold and silver coin, or 
bullion, and shall be in the actual possession and bona fide the property 
of the bank at the time of its commencement of its banking business, and 
at the place designated for carrying on such business. 

Section 17. That the capital stock of each bank shall be divided into 
shares of fifty dollars each, and shall be assignable on the books of the 
bank, in such manner as the by-laws shall prescribe ; but no shareholder 
shall have power to sell or transfer any shares held in his own right, so 
long as he shall be liable, either as principal debtor, surety or otherwise, 
to the bank for any debt, without the consent of a majority of the directors; 
nor shall such shareholder, when liable to the bank for any debt that is 
overdue and unpaid, be entitled to receive any dividend, interest or profit 
on such shares, as long as such liabilities shall continue, but all such 
dividends, interests or profits shall be retained by the bank and applied to 
the discharge of such liabilities. 

Section 18. That if any shareholder, or his assignee, shall fail to pay 
any instalment on his stock, when the same shall be required to be paid, 
the bank may sell such stock at public auction, having given three weeks' 
previous notice thereof in two newspapers, if two are published in the 
county where the bank is located, to the highest and best bidder for the 
same, and the excess, if any, after paying the expenses of the sale, shali 
be refunded to the delinquent stockholder. 

Section 19. That if any bank, authorized by the provisions of this act, 
shall refuse to pay its notes of circulation, or any of them, in gold or 
silver coin of the lawful currency of the United States, on which payment 
shall be lawfully demanded at its banking house, or customary place of 
doing banking business, during usual banking hours, the holders of such 
protested notes may cause the same to be protested for non-payment by 
a notary public, under his official seal, in the usual manner ; and the 
auditor general, on receiving and filing in his office such protest, shall 
forthwith give notice, in writing, to the maker of such note or notes, to 
pay the same ; and if they omit to pay the same with interest, costs and 
protest, for twenty days after such notice, the auditor general shall there- 
upon declare such bank to have committed an act of insolvency. 

Section 20. That the auditor general, upon receiving reliable informa- 
tion that any bank has committed an act of insolvency, shall forthwith 
appoint a committee of three judicious and discreet citizens of this com- 
monwealth, who shall receive five dollars per day each, and their travelling 
and necessary expenses, all of which to be paid by said bank, who shall 
make immediate inquiry into the truth of such information, and report 
thereon to the auditor general of the commonwealth; and if the said 
committee, or a majority of them, shall report that such bank has sus- 
pended payment of its notes in gold and silver, he shall forthwith appoint 
a suitable receiver, who shall take immediate possession of the books, 
records, money, choses in action, and property of such bank, of every 

489 



Banking in the United States. 

description, including the securities deposited with the said auditor gene- 
ral, and hold the same for the joint use of the creditors of the failing 
bank. The compensation of such receiver shall be five dollars per day- 
each, and travelling and necessary expenses, to be paid by said bank, 
whose assets he is appointed to take possession of. 

Section 21. That the receiver appointed as provided in this act, shall 
be required to give bond in such sum and with such sureties as the auditor 
general and the governor shall deem sufficient, and under the direction of 
said auditor general, shall proceed to settle up the affairs of such bank, 
and shall convert into money all its assets of every kind whatsoever, with 
the least possible delay ; the money so made shall be applied — 

I. To pay all the liabilities on account of the notes of circulation, to 
pay the same on demand, and set aside a sum sufficient to meet all the 
said notes outstanding. 

II. Then to pay all the deposits of the bank. 

III. To the payment and discharge of all the remaining liabilities of 
such bank. 

IV. And the residue shall be divided among the stockholders of the 
failing bank, in proportion to the stock by them respectively held. 

Section 22. That it shall be the duty of the cashier of every bank to 
publish monthly, in two newspapers, if two are published, and if two are 
not published, then in one paper of said county wherein the same may be 
situate, if there be one published in said county, the entire amount of the 
assets of the bank as herein provided for, and every class of items therein, 
under separate heads, setting forth the amount of the capital stock actually 
paid in, the entire amount of indebtedness and liabilities of said bank, the 
amount of circulation, the amount of deposits, the amount of gold and 
silver in the vaults of the bank at the time of making the exhibit, the 
amount of bills, bonds, notes and other evidences of debt, the value of the 
real and personal property of the bank. 

Section 23. That the directors of each bank shall semi-annually, on 
the first Monday in May and November, declare a dividend of so much of 
the net profits of the bank as they shall judge expedient, and pay the same 
to the stockholders, on demand, at any time after the expiration of ten days 
therefrom ; but such dividend shall in no case exceed the amount of the 
net profits actually acquired, so that the capital stock of the bank shall 
never be thereby impaired ; and if the directors of the bank shall make 
any dividends which shall impair the capital stock of the bank, the direct- 
ors consenting thereto shall be jointly and severally liable in any action 
of debt, scire facias, or bill in equity, in their individual capacities, to 
such corporation, for the amount of the stock so divided ; and each di- 
rector present or otherwise when such dividend shall be made, shall be 
adjudged to be consenting thereto, unless he forthwith enter his protest 
on the minutes of the board, and give public notice to the stockholders of 
the declaring of such dividend. 

Section 24. That said banks shall pay into the treasury of the State, 
in the manner now directed by law for the payment of a tax on dividends, 
as follows : On all dividends which do not exceed six per centum per an- 
num, eight per centum ; on dividends exceeding six per centum, and not 

490 



Banking in the United States. 

exceeding seven per centum, a tax of nine per centum ; on dividends ex- 
ceeding seven per centum, and not eight per centum per annum, a tax of 
ten per centum ; on dividends exceeding eight per centum per annum, and 
not exceeding nine per centum, a tax of twelve per centum ; on dividends 
exceeding nine per centum, and not exceeding ten per centum, a tax of 
thirteen per centum ; on dividends exceeding ten per centum, and not 
exceeding eleven per centum, a tax of fifteen per centum ; on dividends 
exceeding eleven per centum, and not exceeding twelve per centum, a tax 
of seventeen per centum ; on dividends exceeding twelve per centum, and 
not exceeding fifteen, a tax of twenty per centum ; on dividends exceeding 
fifteen per centum, and not exceeding twenty per centum, a tax of twenty- 
five per centum ; and on all dividends exceeding twenty-five per centum, 
a tax of thirty per centum. 

Section 25. That on each dividend day the cashier shall make a full, 
clear and accurate statement or exhibit of the condition of the bank, as it 
shall be on that day, after declaring the dividend, which shall be verified 
by the oath of the president and cashier, setting forth — 

I. The amount of the capital stock actually paid in, and then remaining 
as the actual capital stock of the bank. 

II. The amount of the bills and notes of the bank then in circulation, 
specifying the amount of each denomination. 

III. The greatest amount of notes in circulation at any time since the 
making of the last previous statement, specifying the time when the same 
occurred. 

IV. The balances and debts of every kind due to banks of this State, 
and the amount due to banks not of this State. 

^ V. The amount due to depositors. 

VI. The total amount of debts and liabilities of every description, and 
the greatest amount since the last previous statement, specifying the time 
when the same occurred. 

VII. The total amount of dividends declared on the day of making the 
statement. 

VIII. The amount of gold and silver coin and bullion belonging to such 
bank, and in possession at the. time of making the statement, designating 
the amount of each. 

IX. The amount on hand of bills, bonds, notes and other evidences of 
debts discounted or purchased by the bank, specifying, particularly, the 
amount of suspended debt, the amount considered bad, the amount con- 
sidered doubtful, and the amount in suit or judgment. 

X. The value of the real and personal property held for the convenience 
of the bank, specifying the amount of each. 

XL The amount of real estate taken for debts due the bank. 

XII. The amount of the undivided profits of the bank. 

XIII. The total amount of the liabilities to the bank by the directors 
thereof collectively, specifying the gross amount of such liabilities as 
principal debtors, and the gross amount as endorsers or sureties. 

XIV. The total amount of liabilities to the bank by the stockholders 
thereof collectively, specifying the gross amount of such liabilities as 
principal debtors, and the gross amount as endorsers or sureties ; which 

491 



Banking in the United States. 

statement shall be forthwith transmitted to the auditor general of the 
commonwealth, and a copy thereof immediately published three times in 
two newsprapers of the county in which said bank is located ; Provided, 
The same are published, one of which papers shall be in the German 
language if published within the county, else in two English papers. 

Section 26. That if any bank, against which the auditor general shall 
have instituted proceedings on account of any supposed act of insolvency 
as prescribed in this act, shall deny having committed such act of insolv- 
ency, such bank may apply to any court of competent jurisdiction for a 
writ of injunction to said auditor general, to suspend all further proceed- 
ings against such bank as an insolvent bank, and such court, after citing 
said auditor general to appear and show cause why such writ should not 
be granted, and after the finding of a jury that such bank has, at all times, 
continued and still continues to redeem, in gold and silver coin, its notes 
of circulation, shall make an order, enjoining the auditor general from all 
further proceedings against such bank on account of the supposed act of 
insolvency on which such proceedings were instituted, and thereupon all 
the property and assets of such bank shall be restored to its directors. 

Section 27. That if the auditor general in any case fail to proceed in 
the manner prescribed in the foregoing sections of this act, in providing 
for the payment of the outstanding notes of circulation, and other liabili- 
ties of the failing bank, and in closing the affairs of any bank that shall 
have committed an act of insolvency, the holders of any of its notes of 
circulation, or other creditors of such bank may, in case payment of such 
notes of circulation or other claim has been refused, when lawfully de- 
manded, and remain unpaid, apply to any court of competent jurisdiction 
for its writ commanding the auditor general so to proceed ; and it shall be 
the duty of the said court, after citing such bank to appear and show 
cause why such writ should not issue, and upon the finding of a jury that 
such act of insolvency has been committed, to issue their writ command- 
ing said auditor general forthwith to proceed in the manner pointed out 
in the preceding sections of this act, to provide for the payment of out- 
standing notes of such bank, close up its affairs and make application of 
its assets. 

Section 28. That if any bank shall neglect or refuse to comply with 
any order of the auditor general, made in accordance with the provisions 
of this act, requiring such bank to reduce its circulation, or to provide a 
larger amount of specie or other means, or to pay in its stock, or to do or 
cease to do any other matter or thing which said auditor general may deem 
necessary for the security of the noteholders and other creditors, then the 
auditor general may apply to any judge of competent jurisdiction, by 
petition, in which the auditor general shall be made the petitioner, and 
the bank implicated defendant, setting forth the substance of such order 
or orders, and such neglect or refusal on the part of the bank, its oflicers 
or agents, and the auditor general having made affidavit of such neglect or 
refusal, then it shall be the duty of such judge to allow an injunction, 
and to enjoin such bank, its officers, agents and all others in its employ 
or connected therewith, from doing, or suffering, or permitting to be done, 
any business whatever as a bank, from intermeddling with, or in any 

492 



Banking in the United States. 

manner disposing of the books, papers, money, choses in action, assets or 
property of the bank, until the further order of the judge to whom appli- 
cation had been made as aforesaid ; a petition, reciting the proceedings 
had, shall be filed in the court where proceedings have been had, as soon 
as the injunction is allowed. 

Section 29. That upon the allowance of any such injunction, the 
property, credits, securities, liens and assets of every description, of such 
bank, shall forthwith vest in the auditor general, who shall appoint a re- 
ceiver or receivers, to take possession of the same, as is provided heretofore 
by this act; a certificate of the appointment of such receiver, from the 
auditor genera] of this commonwealth, shall be sufficient authority to him 
to take possession of the books, property and rights of every description 
of such bank, and shall be full authority to the sheriff of the county where 
the bank is located, to give such receiver full possession of such books, 
property and rights, with the aid of the county, if required, and said bank 
and receiver shall be governed by the provisions of this act. 

Section 30. That no bank shall take as security, for any loan or dis- 
count, a lien on any part of its capital stock, but the same security, both 
in kind and amount, shall be required of shareholders as of persons not 
shareholders, and no bank shall be the holder or purchaser of any portion 
of its capital, or of the capital stock of any other incorporated bank, 
unless such purchase shall be necessary to prevent loss upon a debt pre- 
viously contracted in good faith, on security, which at the time was deemed 
adequate to insure the payment of such debt, independent of any lien upon 
such stock, or in case of forfeitures of stock for the non-payment of in- 
stalments due thereon, as provided in this act; and stock so purchased 
shall in no case be held by the bank so purchasing for a longer period of 
time than six months, if the same can be sold for what the stock cost the 
said bank, or at par ; nor shall any bank, either directly or indirectly, pledge, 
hypothecate or exchange any of its notes of circulation, for the purpose of 
securing money to be paid. in on its capital stock, nor pledge or hypothe- 
cate, directly or indirectly, any such notes to be used in its ordinary 
business operations. 

Section 31. That each bank shall at all times have on hand, in gold 
or silver coin, or its equivalent, in its vaults, an amount equal to twenty 
per centum of all its circulating notes of every description whatsoever, 
and whenever the amount of its outstanding circulating notes shall exceed 
the above named proportion, no more of its notes shall be paid out or oth- 
erwise put in circulation by such bank, nor shall such bank increase its 
liabilities by making any new loans or discounts, nor make any dividends 
of its profits, until the required proportion between its outstanding circu- 
lating notes, and gold and silver coin, or its equivalent, shall be restored. 

Section 32. That no bank shall, during the time it shall continue its 
operations, withdraw, or permit to be withdrawn, either in form of divi- 
dends, loans to stockholders, or in any other manner, any portion of its 
capital stock ; and if losses shall at any time have been sustained by the 
bank equal to, or exceeding its undivided profits then on hand, no divi- 
dends shall be made, and no dividends shall ever be made by a bank while 
it shall continue its banking operations, to an amount greater than its net 

493 



Banking in the United States. 

profits then on hand, deducting therefrom its losses and bad and suspended 
debts ; and all debts due to a bank on which interest is paid, due and un- 
paid for a period of six months, unless the same shall be well secured or 
shall be in process of collection, shall be considered bad and suspended 
debts within the" meaning of this section. 

Section 33. That no bank shall at any time issue or have in circula- 
tion any note, draft, bill of exchange, acceptance, certificate of deposit, or 
other evidence of debt, which from its character or appearance, shall be 
circulated or intended to circulate as money, other than such notes of cir- 
culation as are by this act described, and which such bank is by this act 
authorized to issue for the purpose of being circulated as money. 

Section 34. That each bank shall receive at par, at the office or bank- 
ing house of such bank, in payment of dues payable at such bank, for 
notes of hand, bills of exchange, or other evidences of debt, discounted or 
purchased by, or belonging to such bank, the notes of circulation issued 
by any other solvent bank incorporated under the provisions of this act. 

Section 35. That every bank may take, reserve, receive and charge on 
any loan or discount made, or upon any note or bill of exchange or other 
evidence of debt, at the rate of six per centum per annum on the amount 
of any such note, bill of exchange, or other evidence of debt so discounted, 
and no more : Provided lioicever, That interest may be reserved or taken 
in advance at the time of making the loan or discount, according to the 
usual rules of banking, and the knowingly taking, reserving or charging 
on any debt or demand discounted or purchased by any bank, a rate of 
interest greater than that allowed by this section, shall be held and ad- 
judged a forfeiture of such debt or demand; but the purchase or discount 
of a bona fide bill of exchange or note, payable at another place than the 
place of such purchase or discount, and the taking or reserving of interest 
thereon at the rate aforesaid, from the time of such purchase or discount 
until the maturity of such bill or note, shall not be held usurious, although 
exchange on the place where it is made payable is at the time of such pur- 
chase or discount worth a premium ; nor shall the discount or purchase of 
a bona fide bill or note payable at a place between which and the place of 
discount or purchase exchange is in favor of the place of discount or pur- 
chase, and the taking in addition to the rate of interest aforesaid, the rate 
of exchange between such places, be deemed usurious : Provided, That no 
loan to or discount in favor of any director, in which more than six per 
centum shall be taken, reserved or charged, shall be forfeited, but the 
same shall be valid against such party : And provided further, That no 
director shall be allowed to purchase any note or obligation which has 
been rejected by the board of directors, except upon the same terms pre- 
scribed by the bank. 

Section 3.6. That all transfers of notes, bonds, bills of exchange, and 
other evidences of debt owing to any bank, or of deposits to its credit ; all 
assignments of mortgages or other securities on real estate, or of judg- 
ments or decrees in its favor; all deposits of money, bullion or other 
valuable thing, for its use, or for the use of any of its stockholders or 
creditors ; all payments of money to either, made after the commission of 
an act of insolvency, or in contemplation thereof, with a view to prevent 

494 



BanMng in the United States. 

the application of its assets in the manner prescribed by this act, or with 
a view to the preference of one creditor to another, except in payment of 
its circulating notes, shall be held utterly null and void. 

Section 37. That if the directors of any bank shall knowingly violate, 
or knowingly permit any of the officers, agents or servants of such bank 
to violate any of the provisions of this act, all the rights, privileges and 
franchises of such bank shall thereby be forfeited; such violation shall, 
however, be determined and adjudged by a court of competent jurisdic- 
tion, agreeably to the laws of this State, and the practice of such court, 
before the corporation snail be declared dissolved ; and in case of such 
violation, every director who participated in, or assented to the same, 
shall be held liable, in his personal and individual capacity, for all damages 
which the bank, its shareholders, or any other persons, body politic or 
corporate, shall have sustained in consequence of such violation. 

Section 38. That every president, director, cashier, teller, clerk or 
agent of any bank who shall embezzle, abstract or wilfully misapply any 
of the moneys, funds or credits of such bank, or shall, without authority 
from the directors, issue or put in circulation any of the notes of such 
bank, or shall, without such authority, issue or put forth any certificate of 
deposit, draw any order or bill of exchange, make any acceptance, sign 
any note, bond, draft, bill of exchange, mortgage or other instrument of 
writing, or shall make any false entry on any book, report or statement of 
the bank, with an intent, in either case, to injure or defraud such bank, 
or to injure or defraud any other company, body corporate or politic, or 
any individual person, or to deceive any officer or agent appointed to in- 
spect the affairs of any bank, shall be deemed guilty of a misdemeanor, 
and upon conviction thereof, shall be confined in the penitentiary, at hard 
labor, not less than one, nor more than ten years. 

Section 39. That the several banks and banking associations of this 
commonwealth, incorporated for the purposes of banking under special 
charters, are hereby authorized, by a vote of the stockholders of said in- 
stitutions, to call in and cancel their circulating notes, and to carry on the 
business of banking under the provisions of this act ; and that any asso- 
ciation of citizens who have declared their intention to make application 
to the present Legislature for an act of incorporation to organize a bank 
of issue, and have caused such advertisement to be made of the same as 
is required by law, may, with their associates, establish a bank, under the 
provisions of this act, at any time after its passage : Provided, The attor- 
ney general is satisfied, and does certify that such advertisement has been 
made in conformity with the constitution and present laws of this com- 
monwealth. 

Section 40. That the notes issued by any bank incorporated under 
this act shall at all times be receivable in payment of all State taxes, and 
other State dues. 

Section 41. That the general assembly may alter or repeal this act at 
pleasure ; but no act altering or repealing this act shall impose any injus- 
tice or wrong upon the stockholders of any bank. 

The following statement shows the condition of the Banks of Philadel- 
phia at various times since January, 1858 : — 

495 



Banking in the United States. 



Jan. 


11, 


1858 


Feb. 


8, 


a 


Marcli 


L 8, 


a 


April 

May 

Dec. 


5, 
3, 
6, 


a 
n 

1858 


Jan. 


3, 


1859 


Feb. 


7, 


u 


March 21, 


it 


April 

May 

June 


25, 
30, 
27, 


u 
it 
it 


July 
Aug. 


18, 
15, 


(( 
a 


Sept. 
Oct. 


5, 
3, 


it 
a 


Nov. 


28, 


it 


Dec. 


5, 


u 


Jan. 


3, 


1860 


Feb. 


6, 


« 


Marct 
March 


i 3, 
10, 


it 

It 



Loans. 
$21,302,374 
20,359,226 
20,471,166 
21,657,152 
22,243,824 
26,195,509 
26,451,057 
26,472,569 
26,856,891 
27,817,918 
26,406,458 
25,406,842 
25,200,073 
24,497,730 
24,640,746 
25,479,419 
25,077,432 
24,963,565 
25,386,387 
25,493,975 
25.742,447 
25,832,077 



Specie. 

$3,770,701 
4,668,085 
5,147,815 
9,937,597 
7,027,712 
6,439,795 
6,063,356 
5,979,439 
6,136,539 
6,689,591 
5,521.759 
5,066,847 
4,824,864 
4,996,541 
5,435,090 
5,321,153 
4,512,324 
4,564,453 
4,450,261 
4,669,929 
4,816,052 
4,873,419 



Circulation. 

$1,011,033 
1,293,046 
1,916,352 
2,647,219 
2,029,617 
2,724,111 
2,741,754 
2,786,453 
2,923,551 
3,179,236 
2,975,736 
2,729,953 
2,873,947 
2,736,309 
2,702,837 
2,742,440 
2,679,562 
2,648,226 
2,856,801 
2,656,310 
2,697,108 
2,783,345 



Deposits. 
$11,455,263 
11,004,519 
12,253,282 
13,422,313 
15,389,718 
16,683,561 
17,049,005 
17,007,167 
16,899,816 
17,804,212 
16,454,349 
16,114,269 
15,011,670 
14,249,758 
14,901,572 
15,550,755 
14,846,676 
14,852,018 
14,982,918 
15,405,341 
15,192,971 
15,205,432 



DELAWARE. 

In the State of Delaware there was one bank in 1801, with a capital of 
$110,000— Bank of Delaware. 



Years. 
1815 
1820 
1837 
1849 
1850 
1854 
1856 



Banks. 
5 
6 



Capital. 

$996,990 
974,900 
818,020 
210,000 
940,000 
680,000 

1,690,000 



4, with 3 branches 
6, with 3 branches 
8, with 3 branches 

Banking is done in this State on a specie basis, and we believe that the 
only failures which have ever occurred in it were the Bank of Miiford, in 
1854, and the Laurel Bank. 

Year. No. banks. Capital. Specie. Circulation. 

1859 . . 12 $1,740,000 $250,000 $600,000 

There are no published returns of banking in this State. Hence the 
community is not informed as to the condition of one or more of them at 
any time. 

Liabilities and Resources of the Banks of Delaware — January 1, 1860. 



Liabilities 
Capital 
Circulation . 
Deposits 
Profits on hand 

. Total . 



$1,638,000 
594,000 
828,000 
412,000 

$3,472,000 



Resources. 
Loans . . . . 

Specie . 

Real estate and miscel- 
laneous 

Total . 



496 



$3,174,000 
216,000 

82,000 

$3,472,000 



Banking in the United States, 



MARYLAND. 

The first bank established in this State was the Bank of Maryland, 
which was incorporated in 1790, with a capital of $300,000. Next in 
the order of succession was the Bank of Baltimore, incorporated in 1795, 
with a capital of $1,200,000, of which $1,122,900 were paid in. In 
1803, the Farmers' Bank of Maryland, with two branches, was chartered, 
with a capital of $1,000,000, of which $752,745 were paid in. 

Capital. 
$3,000,000 
250,000 
1,000,000 
500,000 
600,000 
600,000 
300,000 
200,000 
200,000 
150,000 



Names of banks. 
The Union Bank of Baltimore .... 
The Bank of Hagerstown .... 

The Commercial and Farmers' 
The Farmers' and Merchants' .... 
The Franklin Bank, Baltimore 
The Marine Bank, Baltimore .... 
The Elkton Bank, Maryland .... 
The Cumberland Bank, Alleghany . 
The Farmers' Bank, Cumberland and Worcester 
The City Bank of Baltimore .... 



When chartered. 
1804 
1806 
1810 
1810 
1810 
1810 
1810 
1812 
1812 
1813 



The annexed tabular statement, derived from the treasurer's reports and 
estimates, will exhibit the amount of banking capital in the State for the 
last fifty years, and presents a striking contrast to the banking mania of 
other Atlantic cities. 



Years. 


No. banks. 


Capital. 


Tears. 


No. banks 


Capital. 


1792 


1 


$500,000 


1836 


21 


$8,203,000 


1801 


2 


1,600,000 


1837 


23 


10,438,000 


1805 


4 


5,800,000 


1840 


23 


10,526,000 


1811 


6 


4,895,000 


1845 


22 


8,858,000 


1815 


17 


7,882,000 


1850 


23 


8,704,000 


1820 


14 


6,708,000 


1856 


30 


11,180,000 


1830 


13 


6,250,000 


1860 


33 


12,524,000 



Some of the banks specified in the preceding schedule, failed in 1834, 
such as the Bank of Maryland, Farmers Bank of Maryland, Elkton Bank, 
Havre de Grace Bank, Susquehanna Bridge and Banking Company, and 
various others ; but the loss of their capitals was supplied by the enlarge- 
ment of others, and is scarcely perceptible in the above returns. As an 
illustration of the vicissitudes of some of these banks, we select at random 
the history of the Franklin Bank, of Baltimore, chartered in 1810, with 
a capital of $600,000, for five years, and of which $415,000 only w^ 
paid in. In 1815 the charter was extended twenty years, and in 1821 
ten years more, but a tax for the benefit of the school fund was imposed, 
of twenty cents on every hundred dollars of its stock. In 1834 the char- 
ter was extended from 1845 to 1857, and in 1835 the bank was author- 
ized to double its stock, making its capital $1,200,000 ; but in 1840 it 
was discovered that its cashier had committed large frauds on the bank, 
and it was compelled to stop payment in 1841. After an. examination of 
its affairs, the Legislature authorized a reduction of its capital to $301,595, 
and in 1853 it was increased again to $500,000. The adoption of the 

497 



Banking in the United States. 

new Constitution in 1851 imposed upon stockholders in new banks, or in 
those whose charters might be removed, personal liability for the debts or 
liabilities of such banks, to the extent of the stock held by them respect- 
ively. In 1852 the circulation of notes under five dollars was prohibited 
by law, under similar penalties to those in various other States, and we 
believe has had an influence in creating a larger circulation of coin. 

The banks of Maryland all suspended specie payments in 1814 and 1837, 
in common with all the others in the Middle, Western, and Southern 
States ; and it would be superfluous to recapitulate the circumstances at- 
tending these events, as they have already been described in the preced- 
ing pages. 

Liabilities and Resources of the Banks of Maryland — January 1, 1860. 

Liabilities. Resources . 
Capital . . . $12,560,000 Loans . . . $22,416,000 
Circulation . . . 3,218,000 Specie . . . 3,294,000 
Deposits . . . 9,486,000 Real eastate and Mis- 
Profits on hand . . 932,000 cellaneous . . 486,000 



Total . . $26,196,000 Total . . $26,196,000 



DISTRICT OF COLUMBIA. 

The first bank established at Washington was in 1792, with a capital of 
$500,000; in 1802, there were two banks, $1,500,000; in 1805, three 
banks, $2,000,000 ; in 1811, four banks, $2,341,395; in 1815, ten banks, 
$4,078,295; in 1820, thirteen banks, $5,525,319 capitals. 

Years. Banks. Capital. 

1830 9 $3,879,574 

1837 7- 2,204,445 

1842 6 1,786,920 

1844 . 6 1,649,280 



VIRGINIA. 

The first notice of any bank in Virginia was in 1805, being that men- 
tioned in Mr. Gallatin's report, capital $1,500,000. This was the Bank 
of Virginia, chartered in 1804, and which expired in April, 1857; its 
capital has been enlarged to $2,650,000. There was, it is true, a branch 
of the first bank of the United States in Norfolk ; but the paper of this 
bank rarely found its way into the interior of the country, where the cur- 
rency was purely metallic. " The desk of every agriculturist in Virginia 
had some gold or silver to spare, if he was a prudent, industrious man ; 
or he had something like money to spare in the hands of his merchant, 
who, in the days of which I am speaking, acted as a banker to his prosper- 
ing customers. • The currency being specie, was widely scattered through 
the land, and in diversified hands, so that its concentration at any par- 

498 



Banking in the United States. 



ticular point was impossible ; and consequently its removal from the 
country could not happen to any great extent." The same writer pro- 
ceeds : " No people had more cause to rejoice than the people of Virginia; 
but alas ! the banks came and all things became changed. Like the Upas 
tree they have withered and destroyed the healthful condition of the 
country, and inflicted on the people political and pecuniary disease of the 
most deadly character." 

Such was the tone of public sentiment in the Southern States, origi- 
nating with the establishment of the first United States Bank, and che- 
rished by Virginia until the expiration of its charter in 1811, when, through 
fear that its sovereignty would not be represented at the funeral orgies, 
the Assembly, in January, 1811, passed a special resolve — " to instruct 
their senators and request their representatives to vote against the renewal 
of the charter of the United States Bank" — a puny little institution, on 
its last legs, with an embargo behind it, and a war before its last expiring 
moments. But in one brief year the mystery was explained : Virginia 
ivanted a bank of her own, and in February, 1812, we perceive that the 
Farmers' Bank of Virginia, with a capital of $2,000,000, and with a right 
to issue $6,000,000 of circulation, was chartered, and with the Bank of 
Virginia, (in which the State was interested $300,000,) and the enlarge- 
ment of capital to the old, and the creation of new banks, it certainly was 
very politic that the State should wish to avoid either the rivalry or the 
surveillance of a national institution. Three other banks followed in 
quick succession, with capitals amounting to four millions more, and' there 
was no further outcry against paper money or banks, because the " Old 
Dominion" had adopted them. The charters of the two first banks pro- 
hibited the issue of notes under $5, which they adhered to, until it was 
found convenient to issue $7, $8 and $9 notes to supply the use of coin ; 
and thus the intent of the law was frustrated. Our tabular statement 
furnishes the readiest mode of showing the banking operations of the 
State from 1820 to 1856 : 

Capital. Loans. Circulation. 

85 212 192 

5',75l',100 87,699,000 $3,858,000 

6,731,200 18,021,000 9,107,000 

10,2S3,633 15,596,000 6,707,000 

10,363,362 16,170,000 7,740,000 

9,684,970 17,302,000 8,997,000 

9,731,370 18,163,000 8,944,000 

12,796,436 24 913,000 14,298,000 

13,734,800 25^000,000 13,000,000 

17,040,000 26,000,000 10,400,000 



In 1820, 4 banks 

In 1830, 4 

In 1837, 5 

In 1840, 6 

In 1842, 6 

In 1848, 6 

In 1850, 6 

In 1854, 16 

In 1856, 60 banks and branches 

In 1859, 69 " 



With the exception of 1837, there does not appear to be any extra- 
vagant banking ; but in January of that year, the proportion of loans to 
capital was larger than that of any other State in the Union — being fifty 
per cent, above the average rate of all the banks, and its circulation in 
excess by a larger ratio, 214 to 91 average proportion of circulation to 
capital. 

In 1851, the general banking law was passed, and several banks have 
been chartered, securing their circulation by a pledge of public stocks. 

499 



Banking in the United States. 

The Bank of Virginia and the Farmers' Bank charters expired in 1858, 
and were renewed upon their old basis, "as the experiment of 'inde- 
pendent banking' has not so triumphantly vindicated the sound wisdom 
of the principle, as to induce the public to sacrifice a system which has 
operated in the main equally to the advantage of the State and the com- 
munity. There is certainly nothing in the financial condition of the State 
to warrant any hazardous experiments with its monetary relations." 



NORTH CAROLINA. 

The first bank chartered in North Carolina was the Bank of Cape Fear, 
at Wilmington, in 1804, to continue till 1820. Capital $250,000. This 
charter was extended in 1814 till 1835 and its capital increased. In 1833 
its charter again extended till 1855, and capital increased to $800,000. 
In 1836 its charter extended till 1860, and capital increased to $1,500,000. 
In 1854 its charter extended till 1880, and capital increased to $2,000,000. 

The Bank of Newbern was established in 1804 to continue till 1820. 
Capital $200,000. Extended in 1814 till 1835; capital increased to 
$775,000. This charter was never renewed, but expired in 1835. 

State Bank of North Carolina chartered in 1810 to continue till 1830. 
Capital $1,600,000. 

Bank of the State of North Carolina chartered in 1833 till 1860. 
Capital $1,500,000. 

Merchants' Bank of Newbern chartered in 1834 till 1855. Capital 
$300,000. Charter extended in 1850 till 1880. 

Commercial Bank of Wilmington established in 1847. Capital $300,000. 
Increased in 1850 to $350,000. 

Bank of Fayetteville established 1849. 

Bank of Washington established in 1850 till January, 1877. Capital 
$400,000. 

Bank of Wadesboro' established in 1850 till 1880. Capital $200,000. 
Capital increased in 1852 to $400,000. 

Bank of Charlotte established in 1852 till 1880. Capital $300,000. 

Farmers' Bank, Elizabeth, established 1852 till 1880. Capital $500,000. 

Bank of Yanceyville established 1852 till 1880. Capital $200,000. 

Bank of Clarendon established 1854 till 1880. Capital $400,000. 

Bank of Wilmington established 1854 till 1880. Capital $800,000. 

Bank of North Carolina established 1858-'59 till 1890. Capital 
$2,500,000. Capital all subscribed and went into operation Nov. 1st, 
1859. By the charter the stockholders are entitled to eight directors, and 
the State to two, of which number, by the terms of the charter, the 
Treasurer of the State was one. 

Bank of Lexington established in 1858 till 1885. Capital $300,000. 

Bank of Commerce (Newbern) established in 1858 till 1890. Capital 
$600,000. 

500 



Banking in the United States. 
The following is a summary of the banks in this State : — 
Condition of the Banks in North Carolina in 1858. 









Due 


Due 




Depo- 
sits. 


Banks. 


Capital. 


Surplus. 


foreign 


N. C. Circulation. 








banks. 


banks. 




Bank of Cape Fear . 


$1,591,900 


$356,320 


$5,192 


$920 


$1,612,641 


$299,474 


Bank of the State 


1,500,000 


525,039 


75,945 


17,430 


1,078,158 


545,393 


Merchants' Bank, Newbern 


225,000 


46,656 




2,917 


93,998 


79,391 


Bank of Fayetteville 


380,000 


55,000 




4,708 


184,138 


60,918 


Commercial Bank, Wilmingtoi 


L 350,000 


72,663 


1 8,442 


4,003 


105,033 


67,697 


Bank of Washington 


325,000 


32,633 




4,S56 


357, S70 


31,032 


Farmers' Bank of N. Carolina 


297,900 


14,267 


381 


106 


170.3S5 


. 29,543 


Bank of Wadesborough . 


325,000 


85,610 


8,295 




518,574 


30,1S6 


Bank of Charlotte . 


300,000 


65,978 


19 


1,839 


331,000 


43,564 


Bank of Yanceyville 


200,000 


19,549 


1,084 


1,050 


332,137 


53,193 


Bank of Clarendon . 


400,000 


29,691 




4,475 


310,660 


61,675 


Bank of Wilmington 


630,400 54,400 
$6,525,200 $1,057,806 


'*S6 


641 


349,706 
$5,444,300 | 


62,896 


Total 


$99,444 


$42,945 


$1,364,964 


Banks. 


Notes dis- 
counted. 


Foreign ex- 
change. 


Due by 
N. C. 
banks. 


Specie. 


Eeal 

estate. 


State 

bonds 

&c. 


Bank of Cape Fear . 


$2,341,289 


$957,321 


$95,268 


$472,597 


$71,000 


825,000 


Bank of the State . 


1,998,247 


980,031 


74,842 


2S2.652 


47,058 


36,000 


Merchants' Bank, Newbern 


237,793 


126,399 


36,101 


40,361 


7,563 




Bank of Fayetteville 


602,978 


19,307 


16,613 


41,763 


15,000 




Commercial Bank, Wilmingtoi 


i 329,113 


172,984 


21,572 


73,230 


9,000 




Bank of Washington 


480,133 


139, S53 


10,414 


42.S17 


33.6S1 


39,627 


Farmers' Bank of N. Carolina 


2S0.9S3 


117,748 


15,293 


24,92S 


7,805 


13,444 


Bank of Wadesborough . 


543,368 


334,421 


13,536 


55,025 


5,771 


20,000 


Bank of Charlotte . 


25S.279 


304,268 


87,003 


73,026 




SoO 


Bank of Yanceyville 


283,193 


241,030 


5,522 


73,881 


3.3S5 




Bank of Clarendon . 


511,584 


245,195 


14,424 


52,686 






Bank of Wilmington 


455.2S7 


514,478 
$4,153,035 


12,6S2 66,613 
$403,270 $1,299,579 


15*, 434 
$215,697 


29*754 


Total . 


$S,322,247 


$164,675 



In one of the late reports of the Bank of the State of North Carolina 
we find the following remark : " By successful management, this bank 
has obtained a position and influence which scarcely any State institution 
ever possessed, and certainly none in North Carolina. After passing unin- 
jured through the crisis of 1837, under the able guidance of its first 
president, Mr. Cameron, it rapidly acquired confidence and strength, and 
now stands pre-eminent among the State institutions of our land/' 



SOUTH CAEOLINA. 



The first bank established in this State was the Bank of South Carolina, 
chartered in 1792, with a capital of $1,000,000. In the appendix to Mr. 
Woodbury's report of the banks in 1837, he states the South Carolina 
banks as follows : — 



Years. 


Banks. 


Capital. 


Years. 


Banks. 


Capital. 


1792 
1801 
1805 


1 

2 
2 


$675,000 
3,000,000 
3,000,000 


1811 
1815 

1820 


4 
5 
5 


$3,475,000 
3,730,900 
4,475,000 



The progress of banking in South Carolina is shown by the annexed 
summary for that State : — 

501 



Banking in the United States. 



Years. 




Banks. 


Capital. 


Circulation. 


Deposits. 


Specie. 


Loans. 


1836 . . 10 


$7,936,318 


$7,488,727 


$4,021,210 


$2,500,427 


$16,316,319 


1837 




12 


8,636,118 


7,223,616 


5,048,477 


1,664,786 


18,899,838 


1842 




11 


11,472,922 


2,932,154 


1,743,000 


1,355,178 


13,890,033 


1846 




11 


11,036,260 


3,911,360 


2,353,168 


1,723,561 


14,181,722 


1850 




14 


13,139,571 


8,741,765 


3,322,132 


1,711,902 


20,601,137 


1855 




19 


16,603,253 


6,739,623 


2,871,095 


1,283,284 


23,149,098 


1858 




20 


14,888,000 


5,912,000 


3,279,000 


2,036,000 


18,100,000 


1859 . . 20 


14,888,000 


6,600,000 


3,800,000 


2,000,000 


16,800,000 


Liabilities and Resources of 


the Banks 


of South Carolina — Jan. 1, 1860. 


Liabilities. 






Resources. 




Capital 


. 814,962,000 


Loans 


. 


$32,062,000 


Circulation 


10,971,000 


Specie 


. 


2,255,000 


Deposits . 


7,187,000 


Real estate 


and mis- 




Profits on hand . 


1,884,000 


cellaneous 




687,000 




Tot 


al 


. $35,004,000 


Total 


. 


$35,004,000 



The items of discounts, deposits, specie and circulation of the several 
banks, Feb. 1860, were as follows : — 



Banks. 


Discounts. 


Deposits. 


Circulation. 


Specie. 


Camden .... 


$112,371 


$41,576 


$213,055 


$22,30S 


Charleston 


2,195,959 


843,586 


975,880 


557,897 


Chester .... 


169,284 


92,164 


830,680 


94,770 


Commercial 


700,680 


265,308 


445.845 


84,843 


Exchange 


390,655 


141,423 


1,128,122 


48,183 


Farmers' and Exchange . 


218,651 


131,781 


1,069,825 


208,839 


Georgetown 


179,146 


89,046 


344.290 


50,211 


Hamburg 


209,114 


95,195 


1,158,705 


119,635 


Merchants' 


184,632 


34,602 


533,274 


50,821 


Newberry 


176,806 


64,711 


732,680 


69,796 


People's .... 


915,706 


234,071 


808,045 


206,967 


Planters' 


51,653 


60,291 


570,300 


54,397 


Planters' and Mechanics' 


786,086 


282,733 


341,180 


217,006 


South Carolina 


824,985 


328,549 


99,016 


113,542 


S. W. Railroad 


578,873 


344,382 


289,700 


87,226 


Bank of State 


2,237,089 


919,807 


1,892,780 


265,226 


Branches, Columbia 


773,768 


325,047 




14,703 


" Camden . 


196,793 


14,140 




2,171 


State * 


554,267 


409,611 


628,535 


159,403 


Union .... 


780,112 


288,034 


441,775 


135,315 


Total . 


$12,736,630 


$5,001,054 


$12,603,687 


$2,560,260 




GEORGIA. 







In Georgia, the first bank which appears in Mr. Woodbury's report, 
is, in 1811, one bank, capital $210,000; in 1815, two banks, capital 
$623,580; in 1816, three banks, capital $1,502,600; in 1820, four banks, 
with an aggregate capital of $3,401,510; and the following table shows 
that Georgia has had her full share of banking business, notwithstanding 
her frequent complaints of dependence upon Charleston for facilities, and 
her own want of bank capital. There were, in the State, in 

502 



Banking in the United States. 



Years. 


Banks. 


Capital. 


Circulation. 


Deposits. 


Specie. 


Loans. 


1830 
1837 
1840 
1843 
1846 
1849 
1853 
1855 
1859 


9 
. 32 
. 39 
. 24 
. 22 
. 18 
. 18 
. 21 
. 32 


$4,203,029 
11,438,828 
15,098,694 
10,250,702 
8,970,789 
12,595,010 
12,957,600 
13,413,100 
10,430,000 


$2,719,356 
8,058,739 
5,518,822 
1,972,215 
2,471,264 
4,118,419 
9,518,777 
6.698,869 
6,000,000 


$1,382,634 
2,943,632 
1,985,413 
1,056,842 
1,318,266 
1,697,099 
2,523,227 
2,034,455 
3,400,000 


$1,305,141 
2,860,326 
1,300,694 
1,206,971 
1,104,235 
1,547,626 
1,576.813 
1,451,880 
1,500,000 


$6,252,474 

16,692,215 

13,783,221 

5,451,751 

5,549,232 

6,953,166 

13,567,469 

11,648,559 

18,000,000 


Liabilities and Resources of the Banks in Georgia — January 1, 1860. 




Liabilities. 






Resoukces. 




Capital 
Circula 
Deposil 
Profits 


tion 

on hand . 


. $12,479,000 
7,164,000 
5,746,000 
4,166,000 


Loans 
Specie 
Real estate 
cellaneous 


and mis- 


$21,037,000 
3,726,000 

4,792,000 




Total 


. $29,555,000 


Total 


• 


$29,555,000 








FLORIDA. 







Florida was admitted ioto the Union in 1845. Under its territorial 
government, it had, in 1838, five banks, with an aggregate amount of 
capital of $2,113,302, $774,040 circulation, $145,842 specie, $493,623 
deposits, and $2,652,614 loans. These were located at Pensacola, Talla- 
hassee, Appalachicola, and Magnolia, but they are all broken and worth- 
less. A law was passed in 1849 authorizing a bank at Tallahassee, but 
we believe that it was not organized. 

Florida passed a law, some years since, to authorize the establishing of 
" free banks." Under that law one company was organized ; but the 
authorities of the State, finding that the "free bank" was intended to 
operate in New York rather than in Florida, refused to give it the final 
sanction which the law required. In consequence of this decision, some 
very pretty engravings became useless. 

An agent of the Treasury Department who, some time since, visited 
Florida, found at Tallahassee certain agencies established by banks of a 
neighboring State, which agencies circulated their paper money. He 
did not visit Appalachicola, but he was informed that there were in that 
town some manufacturing or other companies that issued 'change notes or 
" shinplasters," of as low a denomination as twenty-five cents. At Pen- 
sacola, where there were neither bank agencies nor " shinplaster" manu- 
facturers, the currency consisted exclusively of gold and silver. 

There have been two banks recently chartered in Florida : 1. The Bank 
of Fernandina, at Fernandina, a short distance south of the Georgia State 
line, on the Atlantic, capital $100,000 ; 2. The State Bank of Florida, at 
Tallahassee, capital $130,000 ; but they have been in operation too short 
a time to furnish any tabular returns of their operations. 
2 H 503 



Banking in the United States. 



LOUISIANA. 

We gladly turn away from a melancholy review of past disasters, and 
enter upon a scene of still larger operations in Louisiana. The State was 
admitted into the Union in 1812, but there was a bank in the territory in 
1805, of $500,000, which, in 1815, was increased to $1,432,300, distributed 
among three banks, and in 1820 four* banks, with $2,597,420. There 
are no reliable returns of the banks' between 1820 and 1830, but as the 
increase of their number in the United States was but twenty-two, and of 
their capital only eight millions, we take Mr. Gallatin's report of four 
banks in 1830, as the actual number in Louisiana at that period, as " in 
all the Western and Southwestern States there were, in 1830, only eigh- 
teen banks, with capitals amounting to $9,462,268. By the first of Janu- 
ary, 1837, the number of banks in these States was increased to 161, 
including branches, with paid up capitals of the amount of $88,699,974," 
of which Louisiana had 16 banks, with 31 branches, and $36,769,455 
capital, $7,909,788 circulation, $11,487,431 deposits, $3,108,416 specie, 
and loans $59,108,741, which was the highest point of the operations of 
the banks. Niles' Register of March, 1836, gives the following statement 
of bank capital in Louisiana, at that date : — 

In 1811 . . . $754,000 In 1834 . . . $23,364,000 

In 1815 ... 1,432,000 In 1835 . . . 27,172,000 

In 1820 . . . 2,597,000 In 1838 . . . 56,000,000 

In 1830 ... . 5,665,000 

Of which about thirty-two millions were paid in, and the circulation of 
six millions — less than the specie in the banks to redeem it. The official 
reports, however, exhibit a more correct view of the matter, and from it 
we copy the following table : — 



Years. 


Banks. 


Branches. 


Capital. 


Circulation. 


Specie. 


Loans. 


1837 . 
1840 . 
1843 . 
1846 . 


. 16 

. 16 

6 

6 


31 
31 

22 
22 


$36,769,455 
41,711,214 
20,9-29,340 
17,528,910 


$7,909,788 
6,443,783 
1,087,377 
4,206,788 


$3,108,416 
3,163,243 

. 4,451,023 
6,636,394 


$59,108,741 
48,646,799 
20,420,948 
21,582,744 



Comparative Condition of the Banks of 'New Orleans for ten years, on the 
last Saturday of August for each y eat. 



Years. 


Specie. 


Circulation. 


Deposits. 


Loans and 
discounts. 


Exchange. 


1849 


$6,907,387 


$4,556,660 


$6,077,840 


$13,746,489 


$1,291,137 


1850 


4,801,050 


4,607,508 


6,515,542 


15,072,890 


1,495,807 


1851 


4,894,409 


3,950,854 


6,792,140 


15,742,096 


1,272,540 


1852 


6,332,840 


6,770,886 


8,220,003 


14,963,917 


1,163,607 


1853 


7,280,059 


6,456,360 


8,652,822 


16,737,698 


1,088,458 


1854 


7,595,376 


6,289,014 


10,160,817 


18,285,110 


. 1,923,207 


1855 


6,328,341 


5,946,239 


9,152,874 


19,349,270 


1,570,677 


1856 


6,661,698 


7,442,550 


10,643,795 


23,512,273 


2,682,029 


1857 


6,566,052 


8,325,324 


9,706,003 


24,294,933 


2,265,624 


1858 


11,173,021 


6,731,599 


13,343,938 


21,465,648 


4,081,875 



504 



Banking in the United States. 



Statement of the New Orleans Banks — 1860. 





Cash Assets. 


/ 




Banks. 


Loans. 


Specie. 

A 


March 3. 


Feb. 25. 


March 3. 


Feb. 25. 


Citizens' Bank 


$5,498,337 


$5,512,065 


$3,811,421 


$3,712,561 


Canal Bank 


1,882,721 


1,780,111 


1,048,850 


1,041,732 


Louisiana 


3,617,481 


3,437,592 


1,658,964 


1,764,164 


Louisiana State 


5,523,162 


5,330,978 


3,599,690 


3,561,043 


Mechanics' and Traders' 


1,589,252 


1,550,994 


395,481 


423,669 


Bank of New Orleans 


1,823,991 


1,646,497 


461,510 


655,241 


Southern Bank 


228,467 


222,456 


329,152 


202,607 


Union Bank . 


1,712,600 


1,770,471 


535,175 


546,929 


Merchants' 


671,177 


758,375 


330,439 


320,194 


Crescent City . 


1,227,435 


1,239.343 


237,080 


22S,612 


Bank of America . • . 


1,171,597 


1,146,405 


544,241 


492,322 


Total . 


$24,946,210 
Increase . 


$24,395,287 

. $550,923 


$12,952,008 
Increase . 


$12,945,074 




. . $6,S29 




Cash Liabilities. 






Banks. 


Circulation. 


Deposits. 


March 3. 


Feb; 2.3. 


March 3. 


Feb. 25. 


Citizens' Bank 


$5,321,885 


$5,196,790 


$4,664,931 


$4,5S2,396 


Canal Bank 


1,613,560 


1,600,865 


1,073,880 


1,066.195 


Louisiana 


898,439 


862,064 


3,965,1S0 


3,S66,323 


Louisiana State 


3,004,740 


2,928,195 


5,744,261 


5,356,082 


Mechanics' and Traders' 


424,795 


422,810 


975,392 


958,204 


Bank of New Orleans 


670,650 


670,750 


1,208,842 


1,257,294 


Southern Bank 


291,560 


291,905 


428,940 


415,376 


Union Bank . 


629,435 


689,075 


1,130,829 


1,271,999 


Merchants' Bank . 


460.7S5 


461,845 


600,841 


526,649 


Crescent City . 


285,585 


279,575 


429,860 


429,401 


Bank of America 


248,965 


246,545 


1,183,752 

$21,406,708 
Increase . 


1,120,894 


Total . 


$13,850,399 


813,600,419 


$20,850,813 




Increase . 


. $249,9S0 


. $555,S95 


Banks. 


Exchange. 


Due distant banks. 


March 3. 


Feb. 25. 


March 3. 


Feb. 25. 


Citizens' Bank 


$2,882,828 


$2,776,959 


$244,439 


8353,962 


Canal Bank 


1,469,155 


1,533,652 


139,825 


21S.492 


Louisiana 


725,876 


679,245 


156,678 


275,931 


Louisiana State 


836,138 


763,790 


3S4.981 


233,904 


Mechanics' and Traders' 


327,749 


298,614 


15,768 


74,765 


Bank of New Orleans 


440,545 


460,300 


124,605 


160,2S4 


Southern Bank 


992,632 


1,112,137 






Union Bank . 


151,834 


277,156 


121,019 


231,537 


Merchants' Bank . 


127,107 


105,952 


79,096 


72,209 


Crescent City . 


71.965 


62,290 


10,909 


6,042 


Bank of America 


1,224 


13,834 


15,156 


8,181 


Total . 


. $8,027,053 


$8,083,929 


$1,292,476 


$1,635,257 



Decrease 



$56,876 Decrease 



8342,781 



In 1856, there were nine banks, whose capitals amounted to 815,702,600. 
As New Orleans is the grand entrepot of the products of the whole South- 
western country, large hanking facilities are requisite to expedite the cotton, 

505 



Banking in the United States. 

sugar and tobacco shipped annually from this great commercial mart, and 
to supply the demands of the planters during each successive season. 

Louisiana adopted a free banking law in the year 1853 ; one section of 
which provides that " Every bank or banker is required to have on hand 
at all times, in specie, an amount equal to one-third of all their liabilities 
(independently of circulating notes), and two- thirds in specie funds, bills 
of exchange, or paper maturing within ninety days." For the circulating 
notes the banks are compelled to deposit bonds of the United States, or of 
the State of Louisiana, or of the city of New Orleans. 



ALABAMA. 

Alabama was admitted into the Union in 1819, and in the following 
year there were three banks, whose capitals amounted to $469,112 ; in 
1830, one bank, with $495,503 capital, and we give the tabular statements 
of four years, to exhibit its bank history during the memorable epoch of 
1836-42. 



Years. 


Capital. 


Circulation. 


Specie. 


Deposits. 


Discounts. 


1836 
1840 
1841 
1842 
1859 


. 86,558,000 
. 14,379,000 
. 14,346,000 
. 3,067,700 


$6,172,000 

7,211,000 

1,728,000 

19,000 


$1,562,000 

1,589,000 

685,000 

28,000 


$3,152,000 

2,827,000 

980,000 

629,000 


$15,020,000 

24,183,000 

23,065,000 

2,948,000 



In 1843, the banking capital was reduced to $1,500,000, the Bank of 
Mobile being the only institution until 1851. The State owned two-fifths 
of the stock, $600,000, for which it issued its bonds, and the bank paid 
the interest thereon. Since then, the Southern Bank of Alabama, capital 
$500,000, Bank of Montgomery, $100,000, the Northern Bank of Ala- 
bama, $200,000, the Eastern Bank, the Bank of Alabama, with a capital 
of $500,000, and others, have been organized. In 1850 a free banking 
law was passed, but there has been no advantage taken of its privileges, 
by establishing any such institution in the State. " The Bank of the 
State" has been winding up its affairs ever since the expiration of its 
charter, and it has furnished another illustration of the principle that 
there should be no interwoven interests of State and bank, or of politics 
and finance ; they may be correlative but not conjoint. The executive 
messages have fully argued this point, and there is no occasion for further 
comment. 

MISSISSIPPI. 

In 1830-31 the Planters' Bank of Mississippi was chartered, with a 
capital of $3,000,000, of which two-thirds were reserved for the State, 
and one-third allotted to individuals. In July, 1831, the State issued 
$500,000 six per cent, bonds, and in March, 1832, $1,500,000 more, for 
her proportion of the stock. These bonds were sold at thirteen and one- 
fourth per cent, advance, and yielded to the State a premium of $250,000. 

506 



Banking in the United States. 

This was deposited in the bank, as a sinking fund, to be increased by 
the dividends on the State's stock in the bank, from which fund the 
interest on the two millions of bonds was to be regularly paid. The bank 
paid ten per cent, dividends up to September, 1839, when the State stock 
was transferred to the Natchez Railroad Company. The sinking fund 
was then 8800,000 beyond the amount required to pay the interest on the 
State bonds. In 1836 to 1839, a large proportion of this fund was lost, 
and the remnants left were only $60,000, to which about an equal sum 
has since been added by the commissioners, by collections from the assets 
of the Planters' Bank. In 1835, the banking capital of the State amounted 
to 812,000,000, and such was the prosperous condition of the State, that 
it was proposed to add ten millions more to the amount ; and in the ses- 
sion of 1835-36, about seventeen millions of dollars in banks and rail- 
roads were chartered. In 1837 there were eighteen banks in Mississippi, 
the aggregate capitals of which were $12,872,815, having a circulation of 
$5,073,425, and loans $24,351,414. But the end was not yet. In 1838, 
" The Mississippi Union Bank" was chartered, with a capital of 815,500,- 
000, to be " raised by means of a loan, to be obtained by the directors of 
the institution." 

All the banks in the State finally failed, and in 1859 only one, of 
small capital, was left. Even this is represented to be without a legal 
charter. The following table exhibits the condition of the banks of Missis- 
sippi, their number, amount of capital, circulation, specie and loans, for 
the years 1830, 1837, 1840, 1842, 1856, 1859:— 



Years. 


Banks. 


Capital. 


Circulation. 


Specie. 


Lnans. 


1830 


. 1 


$950,600 


$540,190 


7,665 


$1,927,435 


1837 


. 18 


12,872,815 


5,073,425 


1,369,467 


24,351,414 


1840 


. 18 


30,379,403 


15,071,639 


867,977 


48,333,728 


1842 


. 17 


9,261,200 


2,374,189 


11,223 


13,349,481 


1856 


1 


240,165 


234,880 







ARKANSAS. 

We have little to say of Arkansas, where there are no remaining banks 
to claim our attention. There were formerly two banks in Arkansas, the 
Real Estate Bank and the Bank of the State of Arkansas. They are 
both in the hands of trustees for liquidation, and are indebted to the State 
about $1,500,000, and interest to an equal amount for State bonds loaned 
to them, and still unpaid. This State was admitted into the Union in 
December, 1817, and it had then one bank, with a capital of 8100,000. 
In 1820 this capital was increased to $900,000, and in 1830 it had but 
one bank, capital 8950,600. 

In Arkansas there are no banks of issue. Private bankers operating on 
their own capital and their own credit, but issuing no notes for circula- 
tion, are found amply competent to perform all the banking functions that 
the business of the people legitimately require. Since the business has 
been left to men personally responsible in the whole extent of their en- 
gagements, the rates of exchange on New York and other commercial 

507 



Banking in the United States. 

places have been much more regular than they ever were when the cor- 
porate banks were in their most nourishing condition. 

By an act of the 8th of February last, entitled " An act to prevent the 
people from being defrauded with bank paper," severe penalties are im- 
posed on all who shall, after the 4th of July of the present year, pass or 
put in circulation, in Arkansas, any bank note of a less denomination than 
ten dollars. After the 4th of July, 1860, the prohibition embraces all 
notes of a less denomination than twenty dollars. 



TEXAS. 

This State was admitted into the Union in 1845, and although she has 
cost the country a vast amount of money, in prolonged debates in Con- 
gress, in the wasted hours of the excited masses of the people, in cities, 
towns, and villages, and the exhaustion of all the intense expletives that 
suppositive patriotism could invent, yet beyond those straws, after the 
payment of the hard money of the contract, we believe that the govern- 
ment have made a good bargain, and that her territory may be our favored 
pathway to the Pacific. Professor Tucker, twenty-five years ago, said, 
" The banking mania has prevailed in the Southwestern States beyond 
any other in the Union, not excepting New England, but in consequence 
of which, with the most profitable agriculture in the United States, the 
bank circulation has been the most depreciated, and they are still suffering 
the evils of a disordered currency." 

In Texas, the Agricultural and Commercial Bank at Galveston, which 
did business for some ten or twelve years under a territorial charter, ex- 
pired last year of pure inanition ; and there is now no bank of issue in 
that State.* 



KENTUCKY. 

This State was admitted into the Union in June, 1792, and the first 
bank was established in 1802, with a capital of $150,000, in Lexington, 
under the covert name of an insurance company, which was authorized to 
issue notes, payable to bearer. In 1804- a regular bank was incorporated, 
under the name of "The Bank of Kentucky," with a capital of $1,000,000. 
This bank suspended payment in 1814, but resumed it in 1815; in 1817 
forty new banks were incorporated with capitals amounting to $10,000,000, 
and had permission to redeem their notes with the bills of Kentucky banks, 
instead of specie. In 1818 the State was inundated with the paper of 
these banks ; large loans were made, speculation was rife, and most of the 
bubbles which were set afloat collapsed within one brief year. The pres- 
sure became universal, and for "relief" the Legislature chartered a new 
bank, "The Commonwealth," with a capital of three millions, pledging 
the public faith for the redemption of its circulation ; and as security held 

* U. S. Treasury Report. 
508 



Banking in the United States. 

certain lands, south of Tennessee River, as a guaranty. If a creditor 
refused to receive this paper in payment, the debtor was authorized to 
" replevy the debt for the space of two years." The paper of the new 
bank fell fifty per cent., and creditors had the choice of the payment of 
one-half the amount of their claims, or a delay of two years in the settle- 
ment, with all the hazard of ultimate bankruptcy, and a total loss. The 
conflict of the two parties, known as the " relief" and " anti-relief," or 
the " old court" and " new court," was the fiercest which ever agitated 
the State, but after five years struggle, the " old court" party triumphed, 
the replevin act was repealed, and the paper of the Commonwealth Bank 
was suppressed, and ultimately destroyed by successive acts of the Legis- 
lature. In 1833 the dominant party determined to supply the place and 
currency of the two branches of the United States Bank, at Lexington 
and Louisville, by the establishment of State banks; and in 1834 the 
Bank of Kentucky, with a capital of five millions, the Northern Bank of 
Kentucky, with three millions, and the Bank of Louisville, with five mil- 
lions of dollars, were chartered, and are now in existence ; but whose 
aggregate capitals are only $7,030,000, instead of the thirteen millions 
granted. In 1837 all these banks suspended payments in specie, but 
resumed again in 1839, and the Legislature chartered the Southern Bank 
of Kentucky. Shortly afterward, however, the banks suspended a second 
time, and the universal prostration of trade, the repudiation of their bonds, 
by some of the States, and the universal derangement of the currency 
South and West, prevented the stock of the new bank from being taken 
up. The trading community was in a desperate condition, yet they stag- 
gered on under their oppressive load of debts ; but by the liberal accom- 
modations and indulgences of the banks, they were partially relieved, until 
1843, when the pressure gradually diminished, and shortly afterward it 
ceased altogether. In 1842 the three banks resumed specie payments, 
and from a circulation of $2,800,000 in 1842, gradually extended their 
issues until 1850, when they amounted to $6,683,000. The Southern 
Bank of Kentucky had its charter amended, and in 1852 went into opera- 
tion with a capital of $1,300,000. Since then charters have been granted 
to the Farmers' Bank, with $2,300,000 capital; the Commercial Bank, with 
$400,000; the Kentucky Trust Company, with an unlimited capital; and 
the Newport Safety Fund Bank, with 8300,000 capital. Both of these 
latter institutions failed in 1854, and their notes were selling at fifty per 
cent, discount ; and the small notes of the latter bank at 90 per cent. 
With the exception of the charters of these two last banks, the legislation 
of Kentucky has been of a fixed character, and her circulation has ever 
been esteemed in the Western States as of the highest character. There 
were, at the close of 1859, thirty-seven banks and branches in the State, 
the aggregate of whose capitals is $12,660,000, and circulation about 
$13,000,000. In the session of 1854 it was proposed to charter six new 
banks, with capitals amounting to $6,100,000 ; but the governor having 
vetoed one of the bills of incorporation, the bills all failed to pass, and 
there for the present the matter rests. In January, 1860, an increase of 
the capital of the Southern Bank was authorized, vetoed by Governor 
Magoffin, and the bill was afterward passed over the veto. 

509 



Banking in the United States. 

Condensed Statement of the Kentucky Banks from January ', 
January ', 1860. 



1851 
1852 
1853 
1854 
1855 
1856 
1857 
1858 
1859 
1860 



1851 
1852 
1853 
1854 

1855 
1856 
1857 
1858 
1859 
1860 



Capital. 

$7,030,000 
8,108,825 
9,076,436 
10,022,250 
10,343,988 
10,404,822 
10,433,400 
10,674,670 
12,141,725 
12,660,670 

Notes and 
bills. 

&11, 713,606 

14,532,994 
17,222,039 
20,728,192 
16,826,436 
20,950,772 
22,686,504 
17,642,845 
23,674,686 
24,348,276 



Circulation. 

$7,050,437 

8,561,121 

11,702,767 

13,573,510 

8,628,946 

12,634,533 

13,485,585 

8,884,225 

14,345,696 

13,520,207 

Due from 
banks. 

$2,313,527 
2,348,180 
4,569,077 
3,961,758 
3,317,090 
2,541,778 
4,087,048 
3,507,623 
4,896,168 
3,631,938 



Cash Notes dis- 

means. counted. 



$2,475,153 
3,418,035 
4,391,241 
4,594,369 
4,149,541 
4,610,016 
5,983,117 
5,648,100 
7,517,395 
6,741,912 

Due to 
banks. 

$1,187,073 
2,133,042 
3,183,272 
2,800,759 
2,577,633 
2,555,832 
2,949,484 
3,195,154 
4,332,922 
3,237,929 



$4,852,969 
5,110,726 
5,268,383 
4,812,574 
4,421,264 
5,348,396 
5,751,016 
5,295,039 
6,717,926 
6,317,994 

Deposits. 

$1,711,929 
1,830,824 
2,422,046 
2,748,362 
2,196,624 
2,522,692 
3,406,706 
2,324,857 
4,301,867 
4,524,180 



1851, to 



Bills of 
exchange. 

$6,860,636 
9,422,267 
11,956,756 
13,688,592 
12,455,171 
15,638,209 
16,935,341 
12,329,435 
16,956,796 
18,030,282 

Suspended 
debt. 

$222,192 
213,495 
217,201 
180,297 
343,981 
347,955 
312,307 
487,186 
315,076 
332,943 



Consolidated Statement of the Kentucky Banks — January 1, 1860. 

Banks. 



Capital. Circulation. 



Cash 



Bank of Kentucky 
Northern Bank 
Bank of Louisville 
Southern Bank 
Farmers' Bank 
Commercial Bank 
Bank of Ashland 
People's Bank 



$3,700,000 
2,250,000 
1,930,000 
1,590,000 
1,700,000 
1,094,625 
311, S90 
174,155 



$2,673,353 
2,232,928 
1,851,808 
2,135,263 
2,235,003 
1,645,228 
467,495 
279,129 



$1,674,131 
1,424,868 

700,478 
80S.161 
91S.44S 
777,212 
308,246 
130,468 



Coin. 

$857,842 
850,899 
462,378 
660,153 
812,492 
556,193 
196,153 
101,737 



Notes dis- 
counted. 
$1,977,562 
1,545,921 
637,309 
435,113 
875,456 
288,104 
314,038 
244,491 



Bills of 

exchange. 

$4,873,982 

3,103,241 

2,783,728 

2,121,079 

2,790,267 

1,956,214 

292,743 

109.02S 



Total . 


$12,660,670 


$13,520,207 


$6,741,912 


$4,497,847 


$6,317,994 


$1S,030,282 


Banks. 


Eeal estate, 
bonds, &c. 


Due from 
banks. 


Due to 
banks. 


Deposits. 


Suspended 
debt. 


Surplus 
fund. 


Bank of Kentucky 


$2S6,963 


$1,204,852 


$1,324,667 


$1,770,114 


$118,296 


$549,203 


Northern Bank 


116,685 


967,402 


957,682 


1,152,538 


95,475 


530,822 


Bank of Louisville 


149, 1S2 


599,081 


60S, 509 


306,113 


6,241 


79,879 


Southern Bank 


35,475 


459,198 


149,083 


285,807 


56,063 


409,289 


Farmers' Bank 


7S,S00 


166,237 


67,214 


581,073 


25,076 


183,476 


Commercial Bank . 


63,612 


66,365 


112,012 


242, 8S9 


24.07S 


69,897 


Bank of Ashland . 


39,600 


43,214 


19,065 


154,350 


4,295 


33,087 


People's Bank 


1,200 


25,589 


297 


31,296 


3,419 


29,356 



Total 



$771,517 $3,531,938 $3,237,920 $4,524,1S0 $332,943 $1,885,' 



Note. — The term "cash means" includes coin, Eastern exchange, and notes of other banks. 
The Farmers' Bank and Southern Bank do not report Eastern exchange as a part of their "cash 
means." 

In the deposits of the Bank of Kentucky the State deposit ($785,815 63) is included. 



Banks. 


Circulation to 


Circulation to Circulation to $100 


Surplus 


fund 


$100 of stock. 


$100 of coin. 


of 


cash means. 


to capital. 


Bank of Kentucky 


$72 


$312 




$150 


15 per 


cent 


Northern Bank 


99 


262 




157 


23 1-2 


" 


Bank of Louisville 


96 


400 




206 


4 1-7 


" 


Southern Bank 


142 


323 




264 


27 1-3 


" 


Farmers' Bank 


131 


275 




243 


10 4-5 


" 


Commercial Bank . 


150 


296 




212 


6 2-5 


" 


Bank of Ashland • . 


141 


231 




150 


10 1-2 


" 


People's Bank 


160 


275 




214 


17 


<( 



510 



Banking in the United States. 



TENNESSEE. 



At the close of the year 1859, there were in Tennessee fifty banks in 
operation, including branches of the three leading banks, viz. : Bank of 
Tennessee, Planters' Bank of Tennessee, and the Union Bank of Ten- 
nessee. Their aggregate condition was then as follows : — 





Dec. 1859. 




Dec. 1859. 


Capital 
Circulation . 
Deposits 


. $8,361,000 
3,286,000 
5,183,000 
1,712,000 


Loans .... 
Specie 

Real estate and miscel- 
laneous . 


$15,197,000 
2,857,000 

488,000 


Total 


. $18,542,000 


Total 


$18,542,000 



Before 1807 the currency of Tennessee consisted of coin purchased by 
the sale of produce at New Orleans, the coin coming from South America, 
Mexico and the West Indies. In 1807 the Legislature chartered the 
Bank of Nashville, capital $200,000, afterwards increased to $400,000. 
After one or two suspensions, it wound up with much loss. 

In 1811 the Bank of Tennessee was chartered, capital 8400,000, with 
branches at Murfreesborough, Knoxville, Kingston, Carthage, Gallatin, 
Shelbyville, Franklin, Columbia and Winchester, with an aggregate 
capital of about two millions, an enormous sum for that day and for such 
villages. What number of these paper issuers went into operation does 
not appear, nor what became of them, but doubtless they were wretched 
concerns. In 1819 the Farmers and Merchants' Bank was chartered, 
capital $400,000. It was a relief bank, and became insolvent in a year. 
Redemption laws became necessary to rescue property of the debtor out of 
the hands of the creditor. 

In 1820 came the Bank of Tennessee, capital $1,000,000, based upon 
$250,000 State stocks and proceeds of Hiwassee lands. 

In 1833 the Union Bank was chartered, capital stock not to exceed 
three millions. The State took $500,000 of the stock; authorized it in 
certain contingencies to take more than the lawful interest allowed to 
others; declared that it should not refuse the payment of its notes or 
dues to depositors, and if it did, that it should pay ten per cent, till paid; 
that the notes might be made payable at either of its branches, or at any 
" respectable" bank in the Union, whether the same be in Maine, Arkan- 
sas or Georgia ; that its notes and bills issued should in no case exceed 
one hundred per cent, above the amount of capital stock paid in ; and by 
declaring what the tax should be, tied up the taxing power from 1832 to 
January, 1863, a period of thirty years. 

In 1833, the Legislature chartered the Planters' Bank, to expire in 
1863, capital $2,000,000. Its charter, in most material respects, similar 
to that of the Union Bank, authorizing the issuance of four millions of 
notes on two millions of capital stock. 

In 1833, the Legislature chartered the Farmers and Merchants' Bank, 
capital stock $600,000, charter perpetual ; in all other respects substan- 

511 



Banking in the United States. 

tially similar to the Union and Planters' Bank charters. This authorized 
an issuance of $1,200,000 notes, or $600,000 of corporate stock. 

In 1844, the Bank of East Tennessee was chartered, capital $800,000 ; 
stock may be increased $200,000, with capacity thus to issue two millions 
of notes on one million of stock paid. 

In 1848, the Lawrenceburg Bank was chartered, capital stock $100,000, 
with powers and restrictions like the Planters' Bank. Individual liability 
restricted to amount of stock. $200,000 notes may be issued on $100,000 
of stock, and individual liability to $100,000. 

In 1852, the Citizens' Bank of Memphis was chartered, to expire in 
1881 ; capital stock $200,000, may be increased to $500,000. Individual 
liability for all the debts of the corporation — the charter subject to repeal. 
Charter similar to Planters' Bank in other respects. 

In 1853, the Bank of West Tennessee was chartered, to expire in 1881 ; 
capital stock $1,500,000, with right to issue three millions of notes on one 
million and a half of stock. 

In 1854, the Bank of Ocoee was chartered, capital stock $950,000, with 
four branches, $100,000 each. It expires in 1884. Leading provisions 
similar to Union and Planters' Bank charters. $2,650,000 notes on 
$1,325,000 stock. 

In 1854, Bank of Chattanooga chartered, capital stock $500,000, with 
right to issue one million of notes. In other respects similar to Union 
Bank charter. It expires in 1884. 

In 1854, Mechanics' Bank of Memphis was chartered, with capital 
stock of $100,000, with right to issue $200,000 of notes. Stockholders 
individually liable for all debts of the corporation. It expires in 1884. 
Leading features similar to the Union and Planters' Banks. 

In 1854, Agricultural Bank of Brownsville was chartered, capital stock 
$100,000, with right to issue $200,000 notes. It expires in 1884. Lead- 
ing features like Union and Planters' Banks. 

In 1854, the Bank of Shelbyville was chartered, capital stock $500,000, 
with right to issue one million of notes. The right to repeal the charter 
reserved. Its leading features are similar to Union and Planters' Bank 
charters. 

In 1850, the Bank o£ America was chartered, capital stock $1,000,000, 
with right; to issue two millions of notes. It expires in 1885. The Legis- 
lature thought, probably, they were declaring the stockholders liable, but 
there seems to be some doubt about it from the language used. Other 
leading features similar to the Union Bank. 

The statute books have been run over in much hurry, and there are, 
therefore, very probably, errors in the statements, but it is believed to be 
in the main correct, and it exhibits a list of, say sixteen millions of 
authorized bank capital, with a right to issue, say thirty-two millions of 
notes, one- half of which rested on no corporate stock whatever. 

512 



Banking in the United States. 



MISSOURI. 

Missouri was admitted into the Union in 1821. There was one bank 
in existence prior to this date, but the first we find in the regular reports 
is the State Bank of Missouri, at St. Louis, with two branches in 1837, 
and a capital of $533,000, which was afterwards increased to 81,200,000. 
This bank proved very profitable to the State, and was continued until 
March, 1857, when was passed " An act to regulate banks and banking 
institutions, and to create the office of bank commissioner." Under this 
general law the following banks were authorized : — 

Authorized capital. 
$1,000,000* 
1,000,000 
2,000,000 
2,000,000 
1,500,000 
1,000,000 
1,000,000 
1,000,000 



Exchange Bank of St. Louis, with, two branches 
Bank of St. Louis, with two branches 
Merchants' Bank of St. Louis, with three branches 
City Bank of St. Louis, with four branches 
Mechanics' Bank of St. Louis, with three branches 
Southern Bank of St. Louis, with two branches 
Farmers' Bank of Missouri, with two branches . 
Western Bank of Missouri, with two branches . 

Also the Bank of the State of Missouri with branches. 



Liabilities and Resources of the Banks of the State of Missouri, 
January 1, 1860. 

Liabilities. 

Capital owned by State $1,000,000 

Capital owned by individuals 8,082,951 

Amount due depositors 3,348,337 

Unpaid dividends 8,S39 

Interest and exchange ....... 796,478 

Due to other banks 1,200,010 

Circulation outstanding 7,884,885 

Due to parent bank on account 315,333 

Contingent and surplus fund 289, 76S 

Due to parent bank for capital 3,795,796 

Total 826,695,397 

Resources. 

Capital stock in branches $3,641,901 

Notes discounted • . 4,993,245 

Exchange matured 430,399 

Bills of exchange 9,759,025 

Suspended debt 278,526 

Due from banks 1,090,506 

Expense account ........ 209,603 

Notes of other banks 1,046,015 

Coin on hand 4,160,912 

Due from branch banks 133,086 

Real estate 256,509 

Invested in State bonds 695,670 

Total $26,695,397 

513 



Banking in the United States. 



The banks of the State have as much specie as all the Illinois, Wis- 
consin, and Indiana Free Banks together. 

The Bank of the State of Missouri has a capital of $1,000,000, and 
branches at Fayette, Arrow Rock, Cape Girardeau, Palmyra, Springfield, 
Louisiana, Chillicothe, St. Joseph, and Canton. 

The Farmers' Bank of Missouri has a capital of $1,000,000, and 
branches at Paris and Liberty. 

The Western Bank of Missouri has a capital of $260,210, with a 
branch at Glasgow. 

The Union Bank of Missouri has a capital of $378,390, and branches 
at Richmond, Kansas City, Warrensburgh, and La Grange. 

TJie Mechanics' Bank has a capital of $782,355, and branches at 
Warsaw, Weston, and Kansas City. 

The Southern Bank of St. Louis has a capital of $916,755, and 
branches at St. Charles, Independence, and Savannah. 

The Merchants' Bank of St. Louis has a capital of $1,493,000, and 
branches at Brunswick, Osceola, and St. Genevieve. 

The Exchange Bank of St. Louis has a capital of $732,178, and 
branches at Glasgow and Columbia; and the Bank of St. Louis a capital 
of $461,520, with branches at Boonville and Kirkville. 

We give a tabular statement of its operations, during a series of years, 
from 1837 to 1850 :— 





Banks and 
branches. 


Capital. 


Circulation. 


Deposits. 


Specie. 


Loans. 


1837 


2 


$533,538 


$28,000 


$119,855 


$466,715 


$1,109,050 


1840 


2 


1,116,123 


410,740 


1,174,532 


562,902 


2,077,841 


1843 


3 


1,200,588 


731,080 


1,116,672 


1,260,294 


951,949 


1846 


5 


1,200,582 


2,195,840 


1,296,428 


1,453,614 


2,958,495 


1849 


5 


1,208,167 


2,569,950 


1,735,409 


2,427,685 


3,152,028 


1850 


5 


1,208,751 


2,594,790 


1,377,288 


1,902,986 


3,265,275 


1860 


40 


9,082,900 


7,884,000 


3,348,000 


4,160,000 


14,100,000 



OHIO. 

The first bank chartered in Ohio was in 1803, called the Miami Ex- 
porting Company, with a capital of $200,000. It was not a regular bank, 
but " its main purpose was to facilitate trade, then suffering under great 
depression." 

The Bank of Marietta was chartered in 1808, and subsequently the 
Bank of Chillicothe, the former with $500,000, the latter with $100,000 
capital. Other institutions were soon after incorporated, and the follow- 
ing statement shows the progress of banking in the State : — 



Years. 


Banks. 


Capital. 


Years. 


Banks. 


Capital. 


1805 


1 


$200,000 


1838 


33 


$9,247,296 


1811 


4 


895,000 


1840 


37 


10,507,521 


1815 


12 • 


1,484,719 


1845 


8 


2,171,807 


1816 


21 


2,061,927 


1850 


56 


7,129,227 


1820 


20 


1,797,463 


1856 


60 


6,995,250 


1835 


. - 24 


5,819,692 


1859 


53 


5,413,000 



514 



Banking in the United States. 

Of the banks chartered in this State, eighteen have been closed under 
various circumstances of disaster or want of success, and their bills are 
sold at fifty to seventy-five per cent, discount, and about thirty-six of 
them have failed, and their bills are reported as worthless. Two branches 
of the second Bank of the United States were established in Cincinnati 
and Chillicothe in 1817, and the State imposed a tax of 850,000 on each 
branch in 1819 ; but after a long controversy in the courts, it was decided 
at Washington that the tax was illegal, and the State submitted tG the 
decree. In 1845 a new system of banking was introduced into the State, 
known as the "safety fund system/' and under the same act, an " inde- 
pendent bank system." The former was based upon the New York sys- 
tem, but it was more perfect; it created a State bank, subdivided into 
about forty branches, under the supervision of a Board of Control, who 
furnish all the notes required for circulation ; and to this board each 
branch is required to contribute ten per cent, of the amount required for 
circulation, either in stocks of the State or of the United States, or the 
amount in money; to be applied by the board, in case of need, to the 
redemption of the notes of circulation of any one of the branches which 
may fail. The independent banks are twelve in number, having a capital 
of 8650,000. These banks are required to deposit with the State Trea- 
surer certificates of stocks, either of the State of Ohio or of the United 
States, for the entire amount of their circulation, which cannot exceed 
three times the amount of their capital. These banks are annually exam- 
ined by a commissioner appointed by the auditcr, and quarterly returns 
of their condition must be furnished to him, and sire published with those 
of the State Bank branches. The banks are all required to have thirty 
per cent* of the amount of their circulation always on hand, in gold or 
silver coin, or its equivalent in value, one-half at least being in gold or 
silver; "but deposits in any bank or banker's hands of established credit 
in the cities of New York, Boston, Philadelphia, or Baltinfore, subject to 
drafts at sight, and payable in specie, shall be deemed equivalent to gold 
and silver." Of the banks chartered prior to 1845, the Ohio Life Insur- 
ance and Trust Company, chartered in 1831, was the last, and failed in 
1857. In 1851, the Legislature passed an act authorizing " free bank- 
ing," and under its provisions thirteen banks were established, the aggre- 
gate of whose capitals was 8738,050, and a circulation was created of 
8769,397. At one period this was nearly one million of dollars larger ; 
but in consequence of some of the bank plates having been stolen, an 
alarm was raised, and the notes of these banks were suddenly presented 
for redemption. A few months after the passage of the free bank law ? 
the new Constitution of Ohio was submitted to the people and was adopted. 
By its provisions the General Assembly were no longer authorized to 
grant banking powers to associations. 

515 



Banking in the United States. 



Banks of the State of Ohio — February, 1860. 
Resources. 





Independent 


Free 


Branches of 


Total of all 




banks. 


banks. 


State Bank. 


Banks. 


Specie 


6120,957 


$131,416 


$1,576,267 


$1,828,641 


Eastern deposits 


172,760 


335,164 


990,870 


1,498,796 


Notes of other banks 


. . 157,231 


350,764 


390,342 


898,337 


Due from other banks 


89,966 


285,268 


793,735 


1,168,970 


Loans 


1,428,692 


1,414,402 


8,257,368 


11,100,4(33 


State bonds 


600,214 


758,529 




1,358,743 


Safety fund 




... 


794,809 


794,809 


Real estate 


! 75,415 


29,107 


611,391 


718,914 


Cash items 


9,632 


62,638 


85,108 


157,379 


Other resources 


72,453 


. 37,098- 


855,176 


961,722 


Total . 


82,727,320 


$3,404,389 


$14,355,066 


$20,486,775 




Liabilities. 






Capital stock . 


$550,000 


$820,945 


$4,035,750 


$5,406,695 


Reserved fund 






570,110 


570,110 


Safety fund 


548,934 


365,100 




914,034 


Circulation 


538,820 


652,867 


6,792,202 


7,983,889 


Due banks and bankers . 


87,629 


504,315 


198,627 


790,569 


Individual deposits 


853,319 


952,056 


2,211,668 


4,017,044 


Dividends unpaid . 


182 


325 


2,254 


2,761 


Contingent fund 


87,849 


40,407 


265,708 


393,966 


Discounts and interest, &c 


30,850 


62,694 


150,066 


243,610 


Bills payable . 




. 5,000 


48,167 


53,167 


State tax (set off on profits 


1,017 


... 


18,293 


19,310 


Other liabilities 


28,720 


678 


62,216 
$14,355,065 


91,615 


Total . 


$2,727,320 


$3,404,389 


$20,486,775 


• 


INDIANA. 







This State was admitted into the Union in 1816, and in 1820 it had 
two banks, whose capitals amounted to $202,857. In 1834, the State 
Bank of Indiana was incorporated, with a capital of $1,600,000, and with 
ten branches, subsequently increased to thirteen in number. By the 
original charter, $160,000 was assigned to each branch, but they were 
subsequently authorized to increase the amount to $250,000 each. The 
branches were mutually liable for the debts of each other, but divided 
their own profits ; each share was subject to a tax of twelve and one-half 
cents for educational purposes, in lieu of all other taxes; but in case of 
an ad valorem system of taxation in the State, then the stock was liable 
the same as other capital, not exceeding, however, one per cent, altogether. 
No note under five dollars was allowed to be issued, and the Legislature 
reserved the right to restrict it to ten dollars within ten years. The capi- 
tal of any branch might be increased by and with the assent and concur- 
rence of the Legislature and the directors of the State Bank. The 
directors of the paren fc bank were to have charge of the plates and bank 
paper of the branches , and were empowered to deliver to them an amount 

516 



Banking in the United States. 

of such paper not exceeding twice the amount of the stock subscribed for. 
One-half of the stock was subscribed for and owned by the State, for 
which they authorized bonds to be issued to the amount of 81,300,000, at 
five per cent., to realize the funds to pay for their half of the stock ; the 
remaining half was to be subscribed for, and owned by individuals and 
corporations. The debts of each branch were limited to double the amount 
of capital paid in, exclusive of deposits. In January, 1836, an amend- 
ment was passed by the Legislature, and the discounts were allowed to be 
extended to twice and a half of the amount of the capital paid in. In 
1841, the branches were authorized to issue notes of a less denomination 
than five dollars, not exceeding one million of dollars, on the payment of 
one per cent, for the privilege; and of its circulation, about $3,800,000, 
nearly one-sixth part was in small notes. After the resumption of specie 
payments in 1838, out of the 959 banks then in existence in the United 
States, 343 wholly suspended, and 62 partially so ; of which latter num- 
ber were those of the State Bank of Indiana, and which did not again 
resume the payment of specie until October, 1841, when the branches 
held $1,127,000 in specie, to meet a circulation of $2,960,000, and de- 
posits amounting to $317,000 only. The charter of the State Bank of 
Indiana expired January 1, 1857, after having been twenty years in 
operation. A new institution, under the name of the Bank of the State 
of Indiana, was chartered in the preceding year. The latter assumed the 
business of the old one, and has now twenty branches established, with a 
combined capital of $3,050,000. 

This State adopted a general banking law in the year 1852, under 
which over one hundred banks have been established. At the close of 
1859, only seventeen of these were in active operation. The whole num- 
ber of banks at that time, with their capital, etc., was as follows : — 





No. 


Capital. 


Circulation. 


Specie. 


Free banks 


17 


$1,344,000' 


81,190,000 


8150,000 


Branches of State Bank . 


20 


3,050,000 


2,300,000 


1,069,000 



Liabilities and Resources of the Banks of Indiana — July 1, 1859. 

Liabilities. Resources. 

Capital . , . $3,617,000 Loans .... $7,641,000 

Circulation . . . 3,946,000 Specie . . . 1,794,000 

Deposits . . . 1,824,000 Real estate and miscel- 

Profits on hand . . 244,000 laneous . . . 196,000 



Total . . $9,631,000 Total . . $9,631,000 



ILLINOIS. 

Bank legislation in Illinois has been quite as extraordinary as in any 
other State in the Union. This State was admitted into the Union in 
December, 1818, but the first bank was established while it was under 
territorial government, in 1813, at Shawneetown, the whole territory then 
containing but 1500 inhabitants. In 1816 it was regularly incorporated, 
and, aided by the government deposits, it acquired extensive credit, pay- 

517 



Banking in the United States. 

ing specie for its bills until August, 1821, after the Kentucky banks had 
suspended; it was at length compelled to stop, and remained dormant 
until February, 1835, when the Legislature renewed its charter until 1st 
January, 1857. In the following month its capital, originally $300,000, 
was increased to $1,400,000, and subscribed for by the State ; and their 
bonds, payable in 1861, were issued to provide the funds for this increase 
of capital. 

The Constitution, in 1818, prohibited the establishment of any new 
banks except a State Bank and its branches; and in March, 1819, "the 
State Bank of Illinois" was incorporated, with a capital of $4,000,000, 
for twenty-five years, one-half to be subscribed for by individuals, and the 
balance by the State, whenever the Legislature thought proper. This 
charter was repealed in 1821, as no effort was made to carry it into opera- 
tion, and another bank was chartered in lieu of it, with a capital of 
$500,000, for ten years, to be owned by the State and managed by the 
Legislature. The capital consisted of its office furniture and bank-note 
plates only ; and $300,000 were directed to be issued and loaned on notes 
for one year, with mortgages as securities, and not exceeding $1,000 to 
each individual. These notes were receivable for taxes and all debts due 
to the State or the bank. It had hardly commenced operations before its 
bills fell to seventy-five per cent. ; shortly after to fifty per cent., and 
finally to twenty-five per cent., when they ceased to circulate at all. The 
members of the Legislature received their pay in the depreciated currency 
at the market value, and on one occasion received $9 per day for their 
services, which the State was compelled to redeem at par; and a loan of 
$100,000 received in these notes at par was paid out at fifty cents on the 
dollar. 

In February, 1835, a new bank was incorporated, with a capital of 
$1,500,000, with the liberty to increase it to $2,500,000— the State 
taking $100,000 of the stock; but in March increased the capital 
$2,000,000 ; the whole of which the State subscribed for. The bank 
was allowed fifty days for the redemption of its bills, and was required to 
redeem the $100,000 loan referred to. The career of this bank was 
brief; it was shortly compelled to suspend payment, and in 1842 it went 
into liquidation. After the suspension of specie payments in 1837, the 
State was without any banks until 1851, when a general banking law was 
passed. The bonds of all States paying six per cent, interest, United 
States stocks and Illinois bonds at eighty per cent, were received by the 
auditor in exchange for the notes of circulation, and the bank commenced 
operations. The amount of bank-notes is limited to the amount of the 
bonds in the hands of the auditor ; but the denominations are optional, so 
that the whole circulation may be in one dollar notes if the parties choose 
to require them ; but in case of failure to redeem them, they are subject 
to twelve and one-half per cent, damages per annum, ten days having 
elapsed after specie is demanded, and the corporate privilege becomes for- 
feited. The stockholders are individually liable for all the debts and 
liabilities of the bank, and provision is made for the collection of the 
same, if occasion should require. 

518 



Banking in the United States. 



Liabilities and Resources of the Banks of Illinois. 
Liabilities. 



Jan 1858. 
Capital . . . . . . $4,679,300 

Circulation 5,238,900 

Deposits ' 658,000 

Profits on hand .... 6,400 



Total 



. $10,582,600 
Resources. 

Loans $7,300,000 

333,000 
2,949,600 



Specie 

Real estate and miscellaneous 

Total 



$10,582,600 



Jan. 1, 1860. 

$4,000,000 

2,846,000 

1,294,000 

212,000 

$8,352,000 



$7,994,000 

269,000 

89,000 

$8,352,000 



MICHIGAN. 



Michigan was admitted into the Union of the States in January, 1837 j 
and in 1838 there were eleven banks, with an aggregate capital of 
$1,,400,000. During that year many more were created, as the following 
statement will show : — 

Date. 
February, 1838 
January, 1841 
January, 1843 
December, 1843 
December, 1844 
December, 1845 
December, 1846 
January, 1848 
January, 1849 
January, 1850 
January, 1854 
January, 1856 * 

The only banks which are now in existence in the State are the Michi- 
gan Insurance Company, the Peninsular Bank, and Farmers and Mechan- 
ics' Bank, all of Detroit. " Free bank laws" were adopted by this State 
in 1849, and personal liability is also imposed upon the stockholders, but 
the law was inoperative. At the close of 1859 the bank capital of Michi- 
gan was only $750,000, circulation $147,000, deposits $680,000, loans 
$1,400,000, specie $50,000. 

Liabilities and Resources of the Banks of Michigan — January 1, 1860. 



Banks and branches. 


Capital. 


43 


$2,397,715 


4 


1,000,000 


2 


428,700 


5 


719,100 


3 


202,650 


6 


815,697 


2 


176,167 


1 


139,450 


1 


147^650 


5 


392,530 


6 


1,084,718 


5 


1,100,000 



Liabilities. 






Resources. 




Capital .... 


$745,000 




Loans .... 


$1,487,000 


Circulation . 


147,000 




Specie .... 


42,000 


Deposits 


681,000 




Real estate and miscel- 




Profits on band 


81,000 




laneous 
Total . 


125,000 


Total . 


$1,654,000 


$1,654,000 


21 




519 







Banking in the United States. 

A general banking law was adopted in Michigan, February, 1857. Only 
one bank has, however, been chartered under this law. As collateral 
security for bank bills, the State treasurer is authorized to receive from 
banks the bonds of the United States, and of the States of Michigan, 
New York, the New England States, Pennsylvania, Indiana, Illinois, Ohio 
or Kentucky, at the rate of ninety-five dollars on the hundred of the 
market value in New York city. No bank to be chartered with less than 
fifty thousand dollars capital, three-fourths of which may be invested in 
State bond for deposit with the treasurer. (See Bankers' Magazine, N. 
Y., October, 1858, for the whole act.) Of the depressed condition of 
the banking system of the State, Senator Chandler said in the United 
States Senate, in March, 1860 : " In Michigan we have scarcely any bank- 
ing capital. I think we have, in the State of Michigan, scarcely half a 
million dollars of banking capital. What is the consequence ? That gold 
comes in to fill the vacuum? No, sir; but the poorest class of currency 
that will come in and circulate is the kind with which we are flooded. 
Our brokers send off to Indiana, Illinois, and Wisconsin, and other States 
where the currency is depreciated two or three per cent., and purchase it 
with drafts on New York, and put it in circulation; and that is four-fifths 
of the circulation of the State of Michigan at this time." 



WISCONSIN. 

The Western States are cursed with an inconvertible currency — one of 
their greatest misfortunes. Illinois and Wisconsin have nearly two hun- 
dred banks or currency mills where promises to pay on demand, prepared 
in the most pleasing and highest style of the engraver's art, with flaming 
tints, as safeguards against counterfeiting ; and the farmer, in exchanging 
his wheat for one of these promises to pay, gets something that is con- 
vertible into gold (at present) at a discount of two per cent, (if in small 
amounts). If he has a few thousands, and sends these pretty promises 
to the location of the bank of issue, thereby hoping to save the two per 
cent, discount, he is " very respectfully" informed that the promise to pay 
on demand does not mean exactly what he always supposed the word de- 
mand to mean. In other words, the banks of Illinois and Wisconsin make 
no pretensions to redeem their issues in coin on demand. Both these 
States have an inconvertible currency issue to the amount of twelve mil- 
lions of dollars and upwards. ' It is true these notes are secured by the 
pledge of State or United States stocks, at a safe margin, and the notes 
are, beyond question, eventually good for their nominal value, unless a 
sudden depreciation in these securities should take place, which is hardly 
probable. This system of banking is truly the perfection of the credit 
system. It is a fine thing for the banker, but it is not a fine thing for the 
farmer or the merchant. 

Wisconsin was admitted into the Union in 1848. The first bank was 
established in Milwaukie, in 1851, with a capital of $225,000. In 1852 
the free banking law was adopted, similar to those in other States, receiv- 
ing all State stocks paying six per cent., and first mortgage railroad bonds, 

520 



Banking in the United States. 



on roads of their own State, at eighty per cent, of their par value, but 
not exceeding one-half of the cost of the road on which they are a lien, 
nor for more than one-half the amount of the circulating notes delivered. 
A tax of one and one-half per cent, was imposed, and the personal liability 
of the stockholders, to the amount of their stock. 



Date. 


Banks. 


Capital. 


Circulation. 


January, 1854 


10 


$554,000 


$519,814 


July, 1854 . 


19 


1,250,000 


786,218 


January, 1855 


22 


1,400,000 


940,000 


January, 1856 


32 


1,983,000 


1,153,534 


July, 1856 . 


38 


2,635,000 


1,443,215 



There is a bank controller by law, who has the supervision of the banks, 
receives the securities, and issues the notes therefor. Bills under $5, of 
foreign banks, are prohibited from circulation. 

According to Governor Randall's message, the whole number of banking 
associations doing business in Wisconsin, on the first Monday of January, 
1860, was 114, with a capital of 88,595,000— a decrease of $285,000 
during the year. The whole amount of countersigned notes issued and 
delivered to the banks, and outstanding on the first day of January, 1860, 
was $4,609,432. These notes are secured by the deposit of specie and 
public stocks as follows : — 

California State stocks, 7 per cent. 

Georgia " 5 

Georgia " 7 

Illinois " 6 

Iowa " 7 

Indiana " 5 

Kentucky " 6 

Louisiana " 5 

Missouri " 6 

Michigan " 6 

N. Carolina " 6 

Ohio " 6 

Tennessee " 6 

Virginia " 5 

Virginia " 6 

Wisconsin " 6 

Minnesota " 8 



Racine and Missouri Railroad Company's bonds, 8 per cent. 
Milwaukie and Missouri Railroad Company's bonds, 8 per cent. 



Total 
Specie of organized banks 
Specie of banks winding up . 



$26,244 
132,201 



Total securities on deposit 
521 



$78,000 
41,000 
20,000 
555,020 
10,000 
60,000 
11,000 
10,000 
2,049,000 
188,000 
403,500 
228,000 
750,000 
57,600 
183,000 
100,000 
20,000 
27,000 
50,000 

$4,974,120 



158,445 
$5,132,565 



Banking in the United States. 



Liabilities and Resources of the Banks of Wisconsin — January 1, 1860. 

Liabilities. Resources. 

Capital . . . $7,995,000 Loans .... $15,098,000 

Circulation. . . 2,964,000 Specie . . . 719,000 

Deposits . . . 4,627,000 Real estate and miscel- 

Profits on hand . . 536,000 laneous . . . 305,000 



Total 



$16,122,000 



Total 



$16,122,000 



IOWA. 



Abstract of the Assets, Liabilities, and Condition of the State Bank of 
Iowa, from the official Returns for Monday, March 7, 1859. 



Dubuque Branch . 
Davenport Branch . 
Des Moines Branch 
Iowa City Branch . 
Keokuk Branch 
Mount Pleasant Branch 
Muscatine Branch . 
Oskaloosa Branch . 

Total . 



Dubuque Branch . 
Davenport Branch . 
Des Moines Branch 
Iowa City Branch . 
Keokuk Branch 
Mount Pleasant Branch 
Muscatine Branch . 
Oskaloosa Branch . 



Capital 
paid in. 

$30,000 
25,300 
25,000 
25,000 
26,250 
25,000 
34,000 
25,000 



Due 

depositors. 

$61,018 54 
51,903 30 
25,331 35 
26,498 45 
20,496 32 
20,126 62 
35,514 45 
21,531 12 



Circulation. 

$12,900 
17,919 
22,450 
23,248 
23,371 
15,450 
23,923 
21,949 



Due to 
banks. 

$ 314 21 
4,130 91 
404 00 
670 51 
156 65 
283 70 



$215,550 


$202,420 15 


$161,210 


$5,959 98 


Specie in 


Due from 




Safety 


banks. 


banks. 




fund. 


. $27,469 12 


$48,810 40 


$22,855 03 


$3,750 00 


35,243 12 


15,109 87 


37,152 20 


6,000 00 


27,047 65 


10,095 27 


37,159 14 


4,066 65 


29,085 65 


24,118 62 


17,061 15 


3,875 00 


20,070 82 


21.364 44 


25,991 62 


4,880 00 


18,256 34 


12,603 56 


22,255 50 


5,932 50 


15,432 00 


38,922 29 


28,789 90 


8,743 75 


16,458 37 


12,414 25 


29,061 51 


8,990 00 



Total . 



$189,063 07 $183,438 70 $220,276 11 $46,237 90 



The State Bank of Iowa in December, 1859, had twelve branches, viz : 
Muscatine, Dubuque, Keokuk, Mount Pleasant, Davenport, Oskaloosa, 
Iowa City, Des Moines, Lyons City, Burlington, Washington and Fort 
Madison. The condition of the banks on the 17th December, was as 
follows : — 



Safety fund 
Specie . 
Discounts 



$84,181 91 
244,135 40 
682,473 59 



Capital . 

Circulation 

Deposits 



$421,920 00 
481,204 00 
464,443 79 



A free banking law was adopted in Iowa, March 22d, 1858, which au- 
thorizes the issue of bank notes based upon a deposit of bonds issued by 
the United States, " or any stocks on which full interest is annually paid, 
or the stocks of the State of Iowa," to be rated at ten per cent, below the 
average market price at New York. The stock of each bank to be at least 

522 



Banking in the United States. 

$50,000. The new branches having been but a few months in business, 
would hardly give a correct idea of their character or management, with- 
out the comparison with the published statement for the month previous, 
which shows for November the following differences, without including the 
Fort Madison branch, which commenced business in October : — 

Oct. 1859. Nov. 1859. 

Loans $608,582 $662,174 

Circulation 352,647 450,304 

Deposits 485,853 451,078 

218,356 222,499 



MINNESOTA. 

Liabilities and Resources of the Banks of Minnesota — January 1, 1860. 

Liabilities. Resources. 

Capital .... 850,000 Loans .... $62,000 

Circulation- . . . 14,000 Specie .... 15,000 

Deposits .... 13,000 Real estate and miscella- 

Profits on hand . . 3,000 neous .... 3,000 



Total . . . 880,000 Total . . . $80,000 

A general banking law was adopted in Minnesota in July, 1858. The 
authority to receive railroad bonds, guaranteed by the State, as collateral 
for bank issues, has thus far been a disadvantage. Only a few banks were 
established in 1859, and it is understood that they have all ceased busi- 
ness. Thus it always will be, for banks established solely on State credit, 
without an adequate specie basis. 



CALIFORNIA. 

In California there are no banks of issue. The people of that State 
have steadily resisted all attempts to introduce paper money among them. 



523 



MONEY: 

A LECTURE 

DELIVERED BEFORE THE NEW YORK 

(Se0grap|kal miir Statistical Sboetg, 

THURSDAY, FEBRUARY, 1857. 



BY HENRY C. CAREY, 



REPRINTED FROM THE MERCHANTS' MAGAZINE FOR APRIL, 1857. 



MONEY. 



1. The single commodity that is of universal request is money. Go 
where we may, we meet persons seeking commodities required for the 
satisfaction of their wants, yet widely differing in their demands. One 
needs food ; a second, clothing ; a third, books, newspapers, horses, or 
ships. Many desire food, yet while one would have fish, another rejects 
the fish and seeks for meat. Offer clothing to him who sought for ships, 
and he would prove to have been supplied. Place before the seeker after 
silks, the finest lot of cattle, and he will not purchase. The woman of 
fashion rejects the pantaloons; while the porter regards her slipper as 
wholly worthless. Of all these people, nevertheless, there would not be 
found even a single one unwilling to give labor, attention, skill, houses, 
bonds, lands, horses, or whatever else might be within his reach, in ex- 
change for money — provided, only, that the quantity offered were deemed 
sufficient. 

So has it been in every age, and so is it everywhere. Laplander and 
Patagonian, almost the antipodes of each other, are alike in their thirst after 
the precious metals. Midianite merchants paid for Joseph with so many 
pieces of silver. . The gold of Macedon bought the services of Demosthenes ; 
and it was thirty pieces or silver that paid for the treason of Judas. African 
gold enabled Hannibal to cross the Alps; as that of Spanish America has 
enabled France to subjugate so large a portion of Northern Africa. Sov- 
ereigns in the East heap up gold as provision against future accidents ; 
and finance ministers in the West, rejoice when their accounts enable 
them to exhibit a full supply of the precious metals. When it is other- 
wise the highest dignitaries are seen paying obsequious court to the 
Rothschild and the Baring, controllers of the supply of money. So, too, 
when railroads are to be made, or steamers to be built. Farmers and 
contractors, landowners, and stockholders, then go, cap in hand, to the 
Croesuses of Paris and London, anxious to obtain a hearing, and desiring 
to propitiate the man of power by making whatsoever sacrifice may seem 
to be required. 

2. Were a hundred ships to arrive in your port to-morrow, a single 
one of which was freighted with gold, she alone would find a place in the 
editorial columns of your journals — leaving wholly out of view the re- 
maining ninety-nine, freighted with silks and teas, cloth and sugar. The 
news, too, would find a similar place in almost all the journals of the 

527 



Money. 

Union, and for the reason, that all their readers, the " bears" excepted, 
so much rejoice when money comes in, and so much regret when it goes 
out. Of all the materials of which the earth is composed, there are none 
so universally acceptable as gold and silver — none in whose movements 
so large a portion of every community feels an interest. 

Why is this the case ? Because of their having distinctive qualities 
that bring them into direct connection with the distinctive qualities of 
man — facilitating the growth of association, and promoting the develop- 
ment of individuality. They are the indispensable instruments of society, 
or commerce. 

That they are so, would seem to be admitted by those journalists when 
giving to their movements so much publicity ; and yet, on turning to an- 
other column, you would probably find it there asserted, that all this anx- 
iety in regard to money was evidence of ignorance — the condition of man 
being improved by parting with gold that he can neither eat, drink, nor 
wear, in exchange for sugar that he can eat, and cloth that he can wear. 
Such may be the case, says one reader, but, for my part, I prefer to see 
money come in, because when it does so, I can borrow at six per cent.; 
whereas, when it is going out, I have to pay ten, twelve, or twenty. This 
is doubtless true, says another, but I prefer to see money arrive — being 
then able to sell my hats and shoes, and to pay the people who make 
them. It may be evidence of ignorance, says a third, but I always rejoice 
when money flows inwards, for then I can always sell my labor; whereas, 
when it flows outwards, I am unemployed, and my wife and children suf- 
fer for want of food and clothing. Men's natural instincts look, thus, in 
one direction, while mock science points in another. The first should be 
right, because they are given of God. The last may be wrong — being one 
among the weak inventions of man. Which is right, we may now inquire. 

3. The power of man over matter is limited to effecting changes of 
place and of form. For the one he needs wagons, horses, ships, and rail- 
roads ; for the other, spades, plows, mills, furnaces, and steam-engines. 
Among men, changes of ownership are to be effected, and for that purpose 
they need some general medium of circulation. 

The machinery of exchange in use is, therefore of three kinds — that 
required for producing changes of place, that applied to effecting changes 
of form, and that used for effecting changes of ownership ; and were we 
now to examine the course of proceeding with regard to them, we should 
find it to be the same in all — thus obtaining proof of the universality of 
the natural laws to whose government man is subject. For the present, 
however, we must limit ourselves to an examination of the phenomena of 
the machinery of circulation. 

In the early periods of society, man has little to exchange, and there 
are few exchanges — those which are made being by direct barter — skins 
being given for knives, clothing, meat, or fish. With the progress of popu- 
lation and wealth, however, all communities have endeavored to facilitate 
the transfer of property, by the adoption of some common standard with 
which to compare the value of the commodities to be exchanged — cattle 
having thus been used among the early Grreeks — while slaves and cattle, 
or "living money," as it was then denominated, were commonly in use 

528 



Money. 

among the Anglo-Saxons — wampum among our aborigines — codfish 
among the people of New England — and tobacco among those of Vir- 
ginia. With further progress, we find them adopting successively iron, 
copper, and bronze, preparatory to obtaining silver and gold, to be used 
as the machinery for effecting exchanges from hand to hand. 

For such a purpose, the recommendations of those metals are very great. 
Being scantily diffused throughout the earth, and requiring, therefore, 
much labor for their collection, they represent a large amount of value — 
while being themselves of little bulk, and therefore capable of being 
readily and securely stored, or transported from place to place. Not be- 
ing liable to rust or damage, they may be preserved uninjured for any 
length of time, and their quantity is, therefore, much less liable to varia- 
tion than is that of wheat or corn, the supply of which is so largely de- 
pendent upon the contingencies of the weather. Capable of the most 
minute subdivision, they can be used for the performance of the smallest 
as well as the largest exchanges; and we all know well how large an 
amount of commerce is effected by means of coins of one and of three 
cents that would have to remain unaffected; were there none in use of less 
value than those of five, six, and ten cents. 

To facilitate their use, the various communities of the world are accus- 
tomed to have them cut into small pieces and weighed, after which they 
are so stamped as to enable every one to discern at once how much gold 
or silver is offered in exchange for the commodity he has to sell; but the 
value of the piece is in only a very slight degree due to this process of 
coinage.* In the early periods of society, all the metals passed in lumps, 
requiring of course, to be weighed ; and such is now the case with much 
of the gold that passes between America and Europe. Gold dust has also 
to be weighed, and allowance has to be made for the impurities with 
which the gold itself is connected; but with this exception, it is of almost 
precisely the same value with gold passed from the mint and stamped with 
an eagle, a head of Victoria, or of Nicholas. 

4. A proper supply of those metals having been obtained, and this 
having been divided, weighed, and marked, the farmer, the miller, the 
clothier, and all other members of society, are now enabled to effect ex- 
changes, even to the exent of purchasing for a single cent their share of 
the labors of thousands, and tens of thousands, of men employed in making 
railroads, engines, and cars, and transporting upon them annually hun- 
dreds of millions of letters; or, for another cent, their share of the labor 
of the hundreds, if not thousands, of men who have contributed to the 
production of a penny newspaper. The mass of small coin is thus a saving 
fund for labor, because it facilitates association and combination — giving 
utility to billions of millions of minutes that would be wasted, did not a 
demand exist for them at the moment the power to labor had been pro- 
duced. Labor being the first price given for everything we value, and 

* The heap of paper in the mill becomes slightly more valuable when it is 
counted off and tied up in reams, and the heap of cloth is in like manner 
increased in value when it is measured and tied up in pieces, for the reason that 
both can be more readily exchanged. Precisely similar to this is the increase 
of value resulting from the process of coinage. 

529 



Money. 

being the commodity that all can offer in exchange, the progress of com- 
munities in wealth and influence is in the direct ratio of the presence or 
absence of an instant demand for the forces, physical and mental, of each 
and every man in the community — resulting from the existence of a power 
on the part of each and every other man, to offer something valuable in 
exchange for it. It is the only commodity that perishes at the instant of 
production, and that, if not then put to use, is lost forever. 

We are all momently producing labor-power, and daily taking in the 
fuel by whose consumption it is produced; and that fuel is wasted unless 
its product be on the instant usefully employed. The most delicate fruits 
or flowers may be kept for hours or days ; but the force resulting from 
the consumption of food cannot be kept, even for a second. That the in- 
stant power of profitable consumption may be coincident with the instant 
production of this universal commodity, there must be incessant combina- 
tion, followed by incessant division and subdivision, and that in turn fol- 
lowed by an incessant recomposition. This is seen in the case above 
referred to, where miners, furnace-men, machine-makers, rag-gatherers, 
carters, bleachers, paper-makers, railroad and canal men, type-makers, 
compositors, pressmen, authors, editors, publishers, newsboys, and hosts of 
others, combine their efforts for the production in market of a heap of 
newspapers that has, at the instant of production, to be divided off into 
portions suited to the wants of hundreds of thousands of consumers. Each 
of these latter pays a single cent — then perhaps subdividing it among 
half a dozen others, so that the cost is perhaps no more than a cent per 
week ; and yet each obtains his share of the labors of all of the persons by 
whom it had been produced. 

Of all the phenomena of society, this process of division, subdivision, com- 
position, and recomposition is the most remarkable; and yet — being a 
thing of such common occurrence — it scarcely attracts the slightest no- 
tice. Were the newspaper above referred to, partitioned off into squares, 
each representing its portion of the labor of one of the persons who had 
contributed to the work, it would be found to be resolved into six, eight, 
or perhaps even ten thousand pieces, of various sizes, small and great — 
the former representing the men who had mined and smelted the ores of 
which the types and presses had been composed, and the latter the men 
and boys by whom the distribution has been made. Numerous as are 
these little scraps of human effort, they are nevertheless, all combined in 
every sheet, and every member of the community may — for the trivial 
sum of fifty cents per annum — enjoy the advantage of the information 
therein contained; and as fully as he could do, had it been collected for 
himself alone. 

Improvements in the mode of transportation are advantageous to man, 
but the service they render, when compared with their cost is very small. 
A ship worth forty or fifty thousand dollars cannot effect exchanges be- 
tween men at opposite sides of the Atlantic to an extent exceeding five 
or six thousand tons per annum; whereas, a furnace of similar cost will 
effect the transmutation of thirty thousand tons' weight of coal, ore, lime- 
stone, food, and clothing, into iron. Compared with either of these, how- 
ever, the commerce effected by the help of fifty thousand dollars' worth 

530 



Money. 

of little white pieces representing labor to the extent of three or five cents 
— labor which by their help is gathered up into a heap, and then divided 
and subdivided day after day throughout the year — and it will be found 
that the service rendered to society, in economizing force, by each dollar's 
worth of money, is greater than is rendered by hundreds, if not thousands, 
employed in manufactures, or tens of thousands in ships or railroads ; and 
yet there are able writers who tell us that money is so much " dead capi- 
tal" — being " an important portion of the capital of a country that pro- 
duces nothing for the country." 

"Money, as money," says an eminent economist, "satisfies no want, an- 
swers no purpose. * * The difference between a country with money, 
and a country altogether without it, would," as he thinks, " be only one of 
convenience, like grinding by water instead of by hand." A ship, as a 
ship — a road, as a road — a cotton-mill, as a cotton-mill — in like manner, 
however, "satisfies no want, answers no purpose." They can be neither 
eaten, drunk, nor worn. All, however, are instruments for facilitating the 
work of association, and the growth of man in wealth and power is in the 
direct ratio of the facility of combination with his follow-men. To what 
extent they do so, when compared with money, we may now inquire. To 
that end, let us suppose that by some sudden convulsion of nature all the 
ships of the world were at once annihilated, and remark the effect pro- 
duced. The ship-owners would loose heavily ; the sailors and the porters 
would have less employment ; and the price of wheat would temporarily 
fall; while that of cloth would, for the moment rise. At the close of a 
single year, by far the larger portion of the operations of society would 
be found moving precisely as they had done before — commerce at home 
having taken the place of that abroad. Cotton and tropical fruits would 
be less easily obtained in Northern climes, and ice might be more scarce 
in Southern ones ; but, in regard to the chief exchanges of a society like 
our own, there would be no suspension, even for a single instant. So far, 
indeed, would it be to the contrary, that in many countries commerce 
would be far more active than it had been before — the loss of ships pro- 
ducing a demand for the opening of mines, for the construction of furnaces 
and engines, and for the building of mills, that would make a market for 
labor, mental and physical, such as had never before been known. 

Let us next suppose that the ships had been spared, and that all the 
gold and silver, coined and not coined, mined and not mined, were anni- 
hilated, and study the effect that would be produced. The reader of 
newspapers — finding himself unable to pay for them in beef or butter, 
cloth or iron — would be compelled to dispense with his usual supply of 
intelligence, and the journal would be no longer printed. Omnibuses 
would cease to run for want of sixpences ; and places of amusement would 
be closed, for want of shillings. Commerce among men would be at an 
end, except so far as it might be found possible to effect direct exchanges, 
food being given for labor, or wool for cloth. Such exchanges could, 
however, be few in number, and men, women, and children would perish 
by millions, because of inability to obtain food and clothing in exchange 
for service. Cities whose population now counts by hundreds of thou- 
sands would, before the close of a single year, exhibit hundreds of blocks 

531 



of unoccupied buildings, and the grass would grow in their streets. A 
substitute might, it is true, be found — men returning to the usages of 
those primitive times when wheat or iron, tobacco or copper, constituted 
the medium of exchange; but under such circumstances, society, as at 
present constituted, could have no existence. A pound of iron would be 
required to pay for a Tribune or a Herald, and hundreds of tons of any 
of the commodities above referred to, would be needed for the purchase 
of the weekly emission of either. Tons of them would be needed to pay 
for the food consumed in a single eating-house, or the amusement fur- 
nished in a single theatre; and how the wheat, the iron, the com, or the 
copper could be fairly divided among the people who had contributed to 
the production of the- journal, the food, or the amusement, would be a 
problem entirely incapable of solution. 

The precious metals are to the social body what atmospheric air is to 
the physical one. Both supply the machinery of circulation, and the re- 
solution of the physical body into its elements when deprived of the one 
is not more certain than is that of the social body when deprived of the 
other. In both these bodies the amount of force is dependent upon the 
rapidity of circulation. That it may be rapid, there must be a full supply 
of the machinery by means of which it is to be effected ; and yet there 
are distinguished writers who mourn over the cost of maintaining the cur- 
rency, as if it were altogether lost, while expiating on the advantages of 
canals and railroads — not perceiving, apparently, that the money that can 
be carried in a bag, and that scarcely loses in weight with a service of 
half a dozen years, effects more exchanges than could be effected by a 
fleet of ships, many of which would be rotting on the shores on which 
they had been stranded, at the close of such a period of service, while the 
remainder would already have lost half of their original value.* 

Of all the labor-saving machinery in use, there is none that so much 
economizes human power, and so much facilitates combination, as that 
known by the name of money. Wealth, or the power of man to com- 
mand the services of nature grows with every increase in the facility of 
combination — this latter growing with the growth of the ability to com- 
mand the aid of the precious metals. Wealth, then, should increase most 
rapidly where that ability is most complete. 

5. The power of a commodity to command money in exchange is 
called its price. Prices fluctuate with changes of time and place — wheat 
being sometimes low, and at others high — and cotton commanding in one 
country thrice the quantity of silver that would be given for it in another. 
In one place, much money is required to be given for a little cloth ; 
whereas, in another, much cloth may be obtained for little money. What 
are the causes of all these differences, and what the circumstances which 
tend to affect prices generally, we may now inquire. 

* A three-cent piece, changing hands ten times in a day, effects exchanges in 
a year to the extent of $100 ; or, if we take both sides of the exchanges, to that 
of $200. Two thousand such pieces — costing 860 — engaged in circulating bread 
at home, are capable of maintaining a greater amount of commerce than can be 
maintained by a ship that has cost $30,000, engaged in effecting exchanges 
between the producers of cloth in Manchester and tea in China. 

532 



Money. 

A thousand tons of rags at the Rocky Mountains would not exchange 
for a piece of silver of the smallest conceivable size ; whereas, a quire of 
paper would command a piece so large that it would weigh an ounce, 
Passing thence eastward, and arriving in the plains of Kansas, their rela- 
tive values, measured in silver, would be found so much to have changed, 
that the price of the rags would pay for many reams of the paper. Com- 
ing to St. Louis, a further change would be experienced — rags having 
again risen and paper having again fallen. Such, too, would prove to be 
the case at every stage of the progress eastward — the raw material steadily 
gaining, and the finished commodity losing, in price, until, at length, in 
the heart of Massachusetts, three pounds of rags would be found to com- 
mand more silver than would be needed for the purchase of a pound of 
paper. The changes of relation thus observed are exhibited in the fol- 
lowing diagram : — 



Paper. 




Massachusetts. 



Rags. 

The price of raw materials tends to rise as we approach those places in 
which wealth most exists — those in which man is most enabled to associate 
with his fellow-man, for obtaining power to direct the forces of nature to 
his service. The prices of finished commodities move in a direction ex- 
actly opposite — tending always to decline as those of raw materials advance. 
Both tend thus to approximate — the highest prices of the one being always 
found in connection with the lowest of the other ; and in the strength of 
the movement in that direction will be found the most conclusive evidence 
of advancing civilization and growing commerce. 

That all the facts are in entire accordance with this view, will be obvi- 
ous to those who remark that cotton is low in price at the plantation, and 
high in Manchester or Lowell ; whereas, cloth is cheaper in Lowell than 
it is in Alabama or Louisiana. Corn, in Illinois, is frequently so cheap 
that a bushel is given in exchange for the silver required to pay for a yard 
of the coarsest cotton cloth ; whereas, at Manchester, it is so dear that it 
pays for a dozen yards. The English farmer profits doubly — obtaining 
much cloth for his corn, while increasing the quantity of corn by help of 
the manure that is furnished by his competitor of the West. The latter 
loses doubly — giving much corn for little cloth, and adding thereto the 
manure yielded by the consumption of his corn, to the loss of which is 
due the unceasing diminution of the powers of his land. 

Looking backward in time, we obtain results precisely similar to those 

533 



Money. * 

obtained in passing from countries in which associated men are found, and 
in which, consequently, wealth abounds, to those in which they are widely 
scattered, and in which they are, therefore, weak and poor. At the close 
of the fifteenth century, eight ecclesiastics, attending the funeral of Anne 
of Brittany, were royally "entertained at a cost of 3.13 francs, of money of 
our time ; while the silk used on that occasion is charged at 25 francs. 
The same quantity of silk could now be purchased for less than a franc 
and a half — a sum that would be entirely insufficient to pay for a single 
dinner. The owner of four quires of paper could then'obtain for it more 
money than was required for the purchase of a hog, and less than two 
reams were needed for that of a bull. In England, hogs, sheep, and corn 
were cheap, and were exported, while cloth was dear, and was therefore 
imported* Coming down to a more recent period, the early portion of 
the last century, we find that corn and wool were cheap, while cloth and 
iron were dear ; whereas, at the close of the century, the former were 
becoming dearer from day to day, while the latter were as regularly be- 
coming cheaper. 

6. Raw material tends, with the progress of men in wealth and civiliza- 
tion, to rise in price. What, however, is raw material ? In answer to 
this question, we may say, that all the products of the earth are, in their 
turn, finished commodity and raw material. Coal and ore are the finished 
commodity of the miner, and yet they are only the raw material of which 
pig-iron is made. The latter is the finished commodity of the smelter, 
and yet it is but the raw material of the puddler, and of him who rolls 
the bar. The bar, again, is the raw material of sheet-iron — that, in turn, 
becoming the raw material of the nail and the spike. These, in time, 
become the raw material of the house, in the diminished cost of which 
are found concentrated all the changes that have been observed in the 
various stages of passage from the rude ore — lying useless in the earth — 
to the nail and the spike, the hammer and the saw, required for the com- 
pletion of a modern dwelling. 

In the early and barbarous ages of society, land and labor are very low 
in price, and the richest deposits of coal and ore are worthless. Houses 
being then obtained with exceeding difficulty, men are forced to depend 
for shelter against wind and rain upon holes and caves they find existing 
in the earth. In time, they are enabled to combine their efforts; and 
with every step in the course of progress, land and labor acquire power 
to command money in exchange, while the house loses it. As the ser- 
vices of fuel are more readily commanded, pig-iron is more easily obtained. 
Both, in turn, facilitate the making of bars and sheets, nails and spikes, 
and all of these facilitate the creation of boats, ships, and houses ; but 
each and every of these improvements tends to increase the prices of the 
original raw materials — land and labor. At no period in the history of 
the world has the general price of these latter been so high as in the 
present one ; at none would the same quantity of money have purchased 
so staunch a boat, so fleet a ship, or so comfortable a house. 

The more finished a commodity, the greater is the tendency to a fall of 
price — all the economies of the earlier processes being accumulated to- 
gether in the later ones. Houses, thus, profit by all improvements in the 

534 



Money, 

making of bricks, in the quarrying of stone, in the conversion of lumber, 
and in the working of the metals. So, too, is it with articles of clothing 
-—every improvement in the various processes of spinning, weaving, and 
dyeing, and in the conversion of clothing into garments, being found 
gathered together in the coat — the more numerous those improvements, 
the lower being its price, and the higher that of the land and labor to 
which the wool is due. 

With every stage of progress in that direction, there is an increasing 
tendency towards" an equality in the prices of the more and the less fin- 
ished commodities — and towards an approximation in the character of the 
books, clothing, furniture, and dwellings of the various portions of society ; 
with constant increase in power to maintain commerce between those 
countries which do, and those which do not, yield the metals which con- 
stitute the raw material of money. 

For proof of this, we may look to any of the advancing communities of 
the world. In the days when the French peasant would have been re- 
quired to give an ox for a ream and a half of paper, wine was much higher 
than it is at present — peaches were entirely unattainable — the finer vege- 
tables now in use were utterly unknown — a piece of refined sugar, or a cup 
of tea or coffee, were luxuries fit for kings alone — and an ell of Dutch 
linen exchanged for the equivalent of 60 francs — $11 25. Now — the 
price of meat having wonderfully increased — the farm laborer is better 
paid; and the consequences are seen in the fact, that with the price of an 
ox the farmer can purchase better wine than then was drunk by kings — 
that he can obtain not only paper, but books and newspapers — that he 
can eat apricots and peaches — that sugar, tea, and coffee have become 
necessaries of life — and that he can have a supply of linen which would, 
in earlier times, have almost sufficed for the entire household of a noble- 
man. Such are the results of an increase in the facility of association 
and combination among men ; and if we now desire to find the instrument 
to which they are most indebted for the power to combine their efforts, we 
must look for it in that to which we have given the name of money. Such 
being the case, it becomes important that we ascertain what are the cir- 
cumstances under which the power to command the use of that instrument 
increases, and what are those under which it declines. 

7. To acquire dominion over the various natural forces provided for his 
use, is both the pleasure and the duty of man ; and the greater the amount 
acquired, the higher becomes his labor, and the greater is the tendency to 
increase of power. "With each addition thereto, he finds less resistance 
to his further efforts ; and hence it is, that each successive discovery 
proves to be but the precursor of newer and greater ones. Franklin's 
lightning-rod was but the preparation for the telegraph-wires that connect 
our cities ; and they, in turn, are but the precursors of those destined 
soon to enable us to read, at the breakfast-table, an account of the occur- 
rences of the previous day in Europe, Asia, and Australia. Each succes- 
sive year thus augments the power of man, and with every new discovery 
utility is given to forces that now are being wasted. The more they are 
utilized — the more nature is made to labor in man's service — the less is 
the quantity of human effort required for the re-production of the com- 
2K 535 



Money. 

modities needed for his comfort, convenience, or enjoyment — the less is 
the value of all previous accumulations — and the greater is the tendency 
towards giving to the labor of the present, power over the capital created 
by the labors of the past. 

Utility is the measure of man's power over nature. The greater it is, 
the larger is the demand for the commodity or thing utilized, and the 
greater the attractive force exerted upon it, wherever found. Look where 
we may, we see that every raw material yielded by the earth tends towards 
those places at which it has the highest utility, and th'at there it is the 
value of the finished article is least.* Wheat tends towards the grist- 
mill, and there it is that flour is cheapest. Cotton and wool tend towards 
the mills at which they are to be spun and woven, and there it is that the 
smallest quantity of money will purchase a yard of cloth. On the other 
hand, it is where cotton has the least utility — on the plantation — that 
cloth has the highest value. Therefore it is, that we see communities so 
universally prospering when the spindle and the loom are brought to the 
neighborhood of the plough and the harrow, to utilize their products. 

Precisely similar to this are the facts observed in regard to the precious 
metals, everywhere on the earth's surface seen to be tending towards those 
places at which they have the highest utility — those at which men most 
combine their efforts for utilizing the raw products of the earth— those in 
which land most rapidly acquires a money value, or price — those, there- 
fore, in which the value of those metals, as compared with land, most 
rapidly diminishes — and those in which the charge for the use of money 
is lowest. They tend to leave those places in which their utility is small, 
and in which combination of action least exists — those, therefore, in which 
the price of land is low, and the rate of interest high. In the first, there 
is a daily tendency towards increase in the freedom of man ; whereas, in 
the last, the tendency is in the opposite direction — towards the subju- 
gation of man to the control of those who live by the expenditure of taxes, 
rent, and interest. Desiring evidence of this, we have but to look around 
us at the present moment, and see how oppressively rent and interest ope- 
rate upon the poorer portions of society — how numerous are the applica- 
tions for the smallest office — and, above all, how great has been the increase 
of pauperism in the past three years, in which our exports of specie have 
been so large. 

Looking to Mexico or Peru, to California or Siberia, we see but little 
of that combination of action required for giving utility to their metallic 
products — little value in land — and interest higher than in any other or- 
ganized communities in the world. Following those products, we see them 
passing gradually through the West, towards the cities of the Atlantic, or 
through Russia to St. Petersburg — every step of their progress being to- 
wards those States or countries in which they have the greatest utility — 
those in which combination of action most exists, and in which, therefore, 
man is daily acquiring power over the various forces of nature, and com- 

* Value is the measure of the obstacle interposed by nature to the gratification 
of the wishes of man. 



Money. 

pelling her more and more to aid him in his efforts for the attainment of 
further power. 

8. For more than a century, Great Britain constituted the reservoir 
into which was discharged the major part of the gold and silver produced 
throughout the world. There it was, that the artisan and the farmer were 
most nearly brought together — the power of association most existed — 
the ultimate raw materials of commodities, land and labor, were most 
utilized, and the consumption in the arts, of gold and silver, was the great- 
est.* Now the state of things is widely different. From year to year, 
the land of the United Kingdom has become more consolidated — the little 
proprietor having been superseded by the great middleman farmer, and 
the mere day -laborer ; and the result is seen in the fact, that Great Brit- 
ain has passed from being a place at which commodities are produced, to 
be given in exchange for the produce of other lands — to being a mere 
place of exchange for the people of those lands. With each successive 
year, there is a decline in the proportion borne to the whole population 
by the producing classes, and an increase in that borne by the non-pro- 
ducing ones, with corresponding diminution in the power to retain the 
products of the mines of Peru and Mexico. 

The gold of California does not, as we know, to any material extent, re- 
main among ourselves. Touching our Atlantic coast, only to be transferred 
to steamers that bear it off to Great Britain, it there meets the product of 
the Australian mines — the two combined amounting to more than a hun- 
dred millions of dollars a year. Both come there, however, merely in 
transit — being destined, ultimately, to the payment of the people of Con- 
tinental Europe, who have supplied raw products that have been converted 
and exported, or finished ones that have been consumed. Much of it goes 
necessarily to France, whose exports have grown, in the short period of 
twenty years, from 500,000,000 francs, to 1,400,000,000, and have steadily 
maintained their commercial character. Manufactures are there the hand- 
maids of agriculture; whereas in the United Kingdom, they are, with 
each successive year, becoming more and more the substitutes for it. To 
a small quantity of cotton, silk, and other raw products of distant lands, 
France adds a large amount of the produce of her farms — thus entitling 
herself not only to receive, but to retain for her own uses and purposes, 
nearly all the commodities that come to her from abroad. Her position 
is that of the rich and enlightened farmer, who sells his products in their 
highest form — thus qualifying himself for applying to the support of his 
family, the education of his children, and the improvement of his land, 
the whole of the commodities received in exchange. That of Britain is the 
position of the trader, who passes through his hands a large amount of 
property, of which he is entitled to retain the amount of his commission, 
and nothing more. The one has immense, and wonderfully growing com- 
merce, while the other performs a vast amount of trade. 

9. The precious metals are steadily flowing to the north and east of 
Europe, and among the largest of their recipients we find Northern Ger- 

* Thirty years since, the annual consumption of the precious metals in Great 
Britain was estimated at £2,500,000, or $12,000,000. 

537 



Money. 

many, now so rapidly advancing in wealth, power, and civilization. Den- 
mark and Sweden, Austria and Belgium, following in the lead of France, 
in the maintenance of the policy of Colbert, are moving in the same di- 
rection; and the consequences are seen in a growing habit of association, 
attended with daily augmentation in the amount of production, and in the 
facility of accumulation, as exhibited in the building of mills, the opening 
of mines, the construction of roads, and the constantly augmenting power 
to command the services of the precious metals. 

The causes of these phenomena are readily explained. Raw materials 
of every kind tend towards those places at which employments are most 
diversified, because there it is that the products of the farm command the 
largest quantity of money. Gold and silver follow in the train of raw 
materials ; and for the reason, that where the farmer and the artisan are 
most enabled to combine, finished commodities are always cheapest. When 
Germany exported corn and wool, they were cheap, and she was required 
to export gold to aid in paying for the cloth and paper she imported; be- 
cause they were very dear. Now she imports both wool and rags ; her 
farmers obtain high prices for their products, and are enriched ; and the 
gold comes to her, because cloth and paper are so cheap that she sends 
them to the most distant quarters of the world. So is it with France, 
Belgium, Sweden, and Denmark — all of which are large importers of raw 
materials, and of gold. In all those countries, raw materials rise in price ; 
and the greater the tendency to rise, the more rapidly must the current of 
the precious metals set in that direction. The country that desires to in- 
crease its supplies of gold, and thus lower the price of money, is, therefore, 
required to pursue that course of policy tending most to raise the prices 
of raw material, and lower those of manufactures. This, however, is di- 
rectly the opposite of the policy advocated by the British school, which 
seeks, in the cheapening of all the raw material of manufactures, the means 
of advancing civilization. 

10. The reverse of what is above described is found in Ireland, Turkey, 
and Portugal, so long the close allies of England — and so uniformly fol- 
lowing in the course of policy now advocated by her economists. From 
each and all of them, there has been an unceasing drain of money — 
the disappearance of the precious metals having been followed by decline 
in the productiveness of agriculture — in the prices of commodities, in the 
value of land, and in the power of man. 

France in the decade prior to the Eden treaty in 1786, was advancing 
in both manufactures and commerce with great rapidity, as is shown con- 
clusively in M. de Tocqueville's recent work.* Haw materials and the pre- 

* " Simultaneous with these changes in the minds of governed and governors, 
public prosperity began to develop with unexampled strides. This is shown by 
all sorts of evidence. Population increased rapidly ; wealth more rapidly still. 
The American war did not check the movement — it completed the embarrass- 
ment of the State, but did not impede private enterprise ; individuals grew more 
industrious, more inventive, richer than ever. 

"An official of the time states that in 1774 ' industrial progress had been so 
rapid that the amount of taxable articles had largely increased.' On comparing 
the various contracts made between the State and the companies to which the 

538 



Money. 

cious metals flowing in, and manufactured goods flowing out, the result 
was seen in a daily increasing tendency towards the division of land, the 
improvement of agriculture, and the increase of human freedom. From 
the date of that treaty, however, all was changed. Manufactures flowed 
in, and gold flowed out, with daily decline in the power of association, in 
the wages of labor, and in the value -of land. Universal distress producing 
a demand for change of policy, its effect was seen in the calling together 
of the States-General, whose appearance on the stage for the first time in 
a hundred and eighty years, was so soon to be followed by a revolution, 
that sent to the guillotine the most of those by whom that treaty had 
been made. 

Looking to Spain, we see her poverty to have steadily increased from 
the hour, when, by expelling her manufacturing population, she rendered 
herself dependent upon the workshops of other countries. Mistress of 
Mexico and Peru, she acted merely as the conduit through which their 
wealth passed to the advancing countries of the world, as is now the case 
with Great Britain and the United States. 

Turning next to Mexico, we see her to have been declining steadily in 
power from the day on which she obtained her independence ; and for the 
reason, that from that date her manufactures began to disappear. From 
year to year she becomes more and more dependent upon the trader, and 
more and more compelled to export her commodities in their rudest state ; 
as a necessary consequence of which, her power to retain the produce of 
her mines is constantly diminishing. 

11. The facts thus far presented, may now be embodied in the follow- 
ing propositions : — 

Raw materials tend towards those countries in which employments are 
most diversified — in which the power of association most exists — and in 
which land and labor tend most to rise in price. 

The precious metals tend towards the same countries ; and for the rea- 
son, that there it is that finished commodities are least in price. 

The greater the attractive force exerted upon those raw materials and 
this gold, the more does agriculture tend to become a science — the larger 
are the returns to agricultural labor — the more steady and regular becomes 
the motion of society — the more rapid is the development of the powers 
of the land, and of the men by whom it is occupied — the larger is the 
commerce — and the greater the progress towards happiness, wealth, and 
power. 

Raw materials tend from those countries in which employments are least 

taxes were farmed out, at different periods during the reign of Louis XVI., one 
perceives that the yield was increasing with astonishing rapidity. The lease of 
1786 yielded fourteen millions more than that of 1780. Necker, in his report of 
1781, estimated that 'the produce of taxes on articles of consumption increased 
at the rate of two millions a year. 

"Arthur Young states that in 1788 the commerce of Bordeaux was greater than 
that of Liverpool, and adds that • of late years maritime trade has made more 
progress in France than in England ; the whole trade of France has doubled in 
the last twenty years.' " — De Tocqueville, The Old Regime and the Revolution, 
p. 210. 

539 



Money. 

diversified — those in which the power of combination least exists — and 
those consequently, in which land and labor are least in price. 

The precious metals, too, tend to leave those countries, because there it 
is that finished commodities are dearest. 

The greater the expulsive force that is thus exhibited, the slower is the 
circulation of society, and the smaller is the amount of commerce — the 
more rapid is the exhaustion of the soil — the lower is the condition of 
agriculture — the less is the return to the labors of the field — the lower 
are the prices of the products of the farm — the less is the regularity of the 
motion of society — the greater is the power of the trader — and the stronger 
is the tendency towards pauperism and crime among the people, and to- 
wards weakness in the government. 

The portions of the world from which the precious metals flow, in which 
agriculture declines, and men become less free, are those which follow in 
the lead of England — preferring the supremacy of trade to the extension 
of commerce — Ireland, Turkey, Portugal, India, Carolina, and other ex- 
clusively agricultural countries. 

The portions towards which they flow are those which follow in the lead 
of France — preferring the extension of commerce to the enlargement of 
the trader's power. Germany and Denmark, Sweden and New England, 
are in this position. In all of these agriculture becomes more and more 
a science, as employments become diversified — the returns to agricultural 
labor increasing as the prices of raw materials tend to rise. 

In all the conntries to which they flow, the prices of raw materials and 
those of finished commodities tend to approximate — the farmer giving a 
steadily diminishing quantity of wool and corn in return for a constant 
quantity of cloth and iron. 

In those from which they flow, those prices become from year to year 
more widely separated — the farmer and the planter giving a steadily in- 
creasing quantity of wool and corn for a diminishing quantity of iron, or 
of cloth. 

Such are the facts presented by the history of the outer world, of both 
the present and the past. How far they are in accordance with our own 
experience we may now inquire. 

12. The mining communities of the world having raw products to sell, 
and needing to purchase finished commodities, the gold and silver they 
produce flow naturally to those countries that have such commodities to 
sell ) and not towards those which have only raw materials to offer in ex- 
change. India has cotton to sell ; Ireland and Turkey have grain : Brazil 
has sugar and coffee ; while Alabama has only cotton ; for which reason 
it is that money is always scarce in those countries, and the rate of interest 
high. Looking homeward, we find that whenever our policy has tended 
towards the production of combination of action between the farmer and 
the artisan, we have been importers of the precious metals, and that then 
land and labor have risen in price. The contrary effect has invariably been 
produced, whenever our policy has tended to the diminution of association, 
and the production of a necessity for looking abroad for making all our 
exchanges of food and wool for cloth and iron — limited, however, for the 
period immediately following the change, by the* existence of a credit that 

540 



Money. 

has enabled us to run in debt to Europe, and thus for a time to arrest the 
export of the precious metals. What was the precise course of the trade 
in those metals during the thirty years preceding the discovery of the 
California gold deposits, is shown by the following figures : — 

Excess exports. Excess imports. 

1821—1825 .... $12,500,000 



1826—1829 
1830—1834 
1835—1838 
1839—1842 
1843—1847 
1848—1850 



9,000,000 



$4,000,000 
20,000,000 
34,000,000 



39,000.000 



14,000,000 

In the closing years of the free trade system of 1817, the average 
excess of specie export was about 82,500,000 a year. To this adding a 
similar amount, only, for the annual consumption, we obtain an absolute 
diminution of five-and-twenty millions, while the population had increased 
about ten per cent. Under such circumstances, it is no matter of surprise 
that those years are conspicuous among the most calamitous ones in our 
history. At Pittsburg, flour then sold at $1 25 per barrel; wheat, through- 
out Ohio, would command but 20 cents a bushel ; while a ton of bar iron 
required little short of eighty barrels of flour to pay for it. Such was the 
state of affairs that produced the tariff of 1824 — a very imperfect mea- 
sure of protection, but one that, imperfect as it was, changed the course of 
the current, and caused a net import, in the four years that followed, of 
$4,000,000 of the precious metals. In 1828, there was enacted the first 
tariff tending directly to the promotion of association throughout the 
country ; and its effects exhibit themselves in an excess import of the pre- 
cious metals — averaging $4,000,000 a year — notwithstanding the discharge, 
in that period, of the whole of the national debt that had been held in 
Europe, amounting to many millions. Putting together the discharge of debt 
and the import of coin, the balance of trade in that period must have been 
in our favor to the extent of nearly $50,000,000 ; or an average of about 
$10,000,000 a year. As a consequence, prosperity existed to an extent 
never before known — the power to purchase foreign commodities growing 
with such rapidity as to render it necessary greatly to enlarge the free list ; 
and then it was that coffee, tea, and many other raw commodities, were 
emancipated from the payment of any impost. Thus did efficient protec- 
tion lead to a freedom of commerce, abroad and at home, such as had never 
before existed. 

The first few years of the compromise tariff of 1833 profited largely by 
the prosperity caused by the act of 1828, and the reductions under it were 
then so small that its operation was but slightly felt. In those years, too, 
there was contracted a considerable foreign debt — stopping the export of 
specie, and producing an excess import averaging more than $8,000,000 a 
year. Prosperity seemed to exist, but it was of the same description that 
has marked the last few years, during which the value of all property has 
depended entirely upon the power to contract debts abroad — thus placing 
the nation more completely under the control of its distant creditors. 

511 



Money. 

In the succeeding years, the compromise became more fully operative.* 
Furnaces and factories were closed, with constantly increasing necessity 
for looking abroad for the performance of all exchanges, and correspond- 
ing necessity for remitting money to pay the balance due on the purchases 
of previous years. Nevertheless, the annual specie export averaged little 
more than $2,000,000 ; but if to this be added a consumption of only 
$3,000,000 a year, we have a reduction of $20,000,000; the consequences 
of which were seen in almost total suspension of commerce. The whole 
country was in a state of ruin. Laborers were everywhere out of em- 
ployment, and being still consumers, while producing nothing, the power 
of accumulation ceased almost to exist. Debtors being everywhere at the 
mercy of creditors, sales of real estate were chiefly accomplished by help 
of sheriffs, whose employments were then more productive than they had 
been from the date of the constitution. 

The change in the value of labor, consequent upon the stoppage of the 
circulation that followed this trivial export of the precious metals, cannot 
be placed at less than $500,000,000 a year. Wages were low, even where 
employment could be obtained ; but a large portion of the labor-power of 
the country was totally wasted, and the demand for mental power dimi- 
nished even more rapidly than that for physical exertion. In the prices of 
land, houses, machinery of all kinds, and other similar property, the re- 
duction counted by thousands of millions of dollars; and yet, the difference 
between the two periods ending in 1833 and 1842, in regard to the mone- 
tary movement, was only that between an excess import of $5,000,000, 
and an excess export of $2,500,000, or a total of $7,500,000 a year. No 
one who studies these facts, can fail to be struck with the wonderful power 
over the fortunes and conditions of men exerted by the metals provided 
by the Creator for furthering the work of association among mankind. 
With the small excess of import in the first period, there was a steady 
tendency towards equality of condition among the poor and the rich, the 
debtor and the creditor ; whereas, with the slight excess of export in the 
second one, there was a daily increasing tendency towards inequality — the 
poor laborer and the debtor, passing steadily more under the control of 
the rich employer, and the wealthy creditor. Of all the machinery fur- 
nished for the use of man, there is none so equalizing in its tendency as 
that known by the name of money; and yet economists would have the 
world believe that the agreeable feeling which everywhere attends a know- 
ledge that it is flowing in, is evidence of ignorance — any reference to 
the question of the favorable or unfavorable balance of trade being 
beneath the dignity of men who feel that they are following in the foot- 
steps of Hume and Smith. It would, however, be as difficult to find a 
single prosperous country that is not, from year to year, making itself a 
better customer to the gold-producing countries, as it would be to find one 
that is not becoming a better customer to those which produce silk, or 

* One-tenth of the excess over 20 per cent, was reduced in December, 1833, 
another tenth in 1835, a third in 1837, and a fourth in 1839 ; the remaining ex- 
cess of duties being then equally divided into two parts, to be reduced in 1841 
and 1842. 

542 



Money. 

cotton. To an improving customer, there must be in its favor a steadily 
increasing balance of trade, to be settled by payment in the commodity 
for whose production the country is fitted, whether that be cloth, or to- 
bacco, silver or gold. 

The condition of the nation at the date of the passage of the act of 1842, 
was humiliating in the extreme. The treasury — unable to obtain at home 
the means required for administering the government, even on the most 
economical scale — had failed in all its efforts to negotiate a loan at six per 
cent., even in the same foreign markets in which it had but recently paid 
off, at par, a debt bearing an interest of only three per cent. Many of 
the States, and some even of the oldest of them, had been forced to sus- 
pend the payment of interest on their debts. The banks, to a great extent, 
were in a state of suspension, and those which professed to redeem their 
notes, found their business greatly restricted by the increasing demand 
for coin to go abroad. The use of either gold or silver as currency had 
almost altogether ceased. The Federal government, but recently so rich, 
was driven to the use of inconvertible paper money, in all its transactions 
with the people. Of the merchants, a large portion had become bankrupt. 
Factories and furnaces being closed, hundreds of thousands of persons were 
totally unemployed. Commerce had scarcely an existence — those who 
could not sell their own labor, being unable to purchase of others. Never- 
theless, deep as was the abyss into which the nation had been plunged, so 
magical was the effect of the adoption of a system that had turned the 
balance of trade in its favor, that scarcely had the act of August, 1842, 
become a law, when the government found that it could have all its wants 
supplied at home. Mills, factories, and furnaces, long closed, were again 
opened; labor came again into demand; and, before the close of its third 
year, prosperity almost universally reigned. States recommenced the pay- 
ment of interest on their debts. Railroads and canals again paid dividends. 
Real estate had doubled in value, and mortgages had been everywhere 
lightened; and yet the total net import of specie in the first four of the 
years, was but $17,000,000, or $4,250,000 per annum ! In the last year 
occurred the Irish famine, creating a great demand for food ; the conse- 
quence of which was, an import of no less than 822,000,000 of gold — 
making a total import, in five years, of 839,000,000. Deducting from 
this but $4,000,000 per annum for consumption, it leaves an annual in- 
crease, for the purposes of circulation, of less than $5,000,000 ; and yet 
the difference in the prices of labor and land in 1847, as compared with 
1842, would be lowly estimated, if placed at only $2,000,000,000. 

With 1847, however, there came another change of policy — the nation 
being again called upon to try the system under which it had been pros- 
trated in 1840-42. The doctrines of Hume and Smith, in reference to 
the balance of trade, were again adopted as those by which a government 
was to be directed in its movements. Protection being then repudiated, 
the consequences were speedily seen in the fact, that within three years, 
factories and furnaces were again closed, labor was seeking demand, and 
gold was flowing out even more rapidly than it had come in under the 
tariff of 1842. The excess export of. those three years amounted to 
$14,000,000; and if to this be added $15,000,000 for consumption, it 

543 



Money. 

follows that the reduction was equal to the total increase under the previ- 
ous system. Circulation was everywhere being suspended, and a crisis 
was close at hand, when, fortunately for the advocates of the existing sys- 
tem, the gold deposits of California were brought to light. 

In the year 1850-'51, the quantity received from that source was more 
than $40,000,000, of which nearly $20,000,000 were retained at home. 
The consequence was speedily seen in a reduction of the rate of interest, 
and a re-establishment of commerce. In the following year, $37,000,000 
were exported, leaving, perhaps, $8,000,000 or $10,000,000, which, added 
to that retained in 1851, made an addition to the currency of probably 
$30,000,000 — producing universal life and motion. In 1852-'53, there 
was still a slight increase, but in the two years following, the export was 
$97,000,000 ; and if to this we add a domestic consumption that probably 
was but little short of $20,000,000, we obtain a total amount withdrawn 
exceeding the receipt from all the world. Looking now to the Union east 
of the Rocky Mountains, it may well be doubted if the effective addition to 
the stock of the precious metals remaining in the form of coin much exceeds 
a single dollar per head of the population.* It may amount to $30,000,000 
or $35,000,000; and small as is that sum, it would have produced a great 
effect in promoting rapidity of circulation, had it not been that, simulta- 
neously therewith, the indebtedness to foreign countries had so much in- 
creased, as to require, for the payment of interest alone, an annual remit- 
tance equal to the whole export of food to all the world — producing doubt 
and general distrust — causing an extensive hoarding of money, and palsying 
the movements of commerce. As a consequence of this it is, that the coun- 
try now presents the most extraordinary spectacle in the world — that of a 
community owning one of the great sources of supply for money, in which 
the price paid for its use is generally thrice, and, in many parts of the 
country, six or eight times as great as in those countries of Europe which 
find their gold mines in their furnaces, their rolling-mills, and their cotton 
and woollen factories. 

* In the last Treasury Report (1856) the addition to the stock of the precious 
metals in the last few years is estimated at more than $100,000,000, and possibly 
even $150,000,000. Small allowance is there, however, made for a consumption in 
the arts, that must, in the last five years, have absorbed at least fifty of those mil- 
lions. None is made for the fact that $20,000,000 are always kept in the Treasury 
vaults, and, while there, are as useless as would be a similar weight of pebble- 
stones. Much advantage is claimed to have resulted from increasing the diffi- 
culty of transferring the property in money, by compelling individuals to carry 
gold in their pockets, when, if the law permitted, they would prefer to carry 
bank-notes. No allowance is made for a land system that compels millions of 
dollars in gold to be transported from one part of the country to another, at great 
cost and risk, when drafts would be used, were it not that it is the object of the 
Federal government, as far as possible, to destroy the utility of the precious 
metals, by promoting their transportation, and thus preventing their circulation. 
From the day when free trade was inaugurated as the policy of the dominant 
party of the country, there has been almost an unceasing war against credit ; 
and the result is seen in the fact that it requires $200,000,000 of gold and silver 
to carry on a smaller amount of commerce than would, under a sound system, 
be transacted by help of less than $100,000,000, and with a steadiness and regu- 
larity that now are quite unknown. 

544 



Our policy has, with slight exceptions, looked steadily towards keeping 
down the prices of the rude products of the earth, and thus facilitating 
their export; and the precious metals always follow in their train. The 
result is seen in the general exhaustion of the soil — in the fact that agri- 
culture makes but little progress — in the diminished yield of the land, and 
in the steady decline of the price of tobacco, flour, cotton and other rude 
products of the earth. Taking the averages of the several decades since 
1810, the export prices of flour have been as follows : — 

For that ending in 1820 $10 37 

" " 1830 6 20 

" " 1840 6 78 

" " 1850 5 27 

The 3 years ending 1853 4 67 

For 18 % 53 4 24 

— this last being probably the lowest price at which it has been sold since 
the arrival of Hendrick Hudson in your harbor. The prices above given, 
I pray you to recollect, are those furnished in the recent Treasury Reports. 
Precisely similar to this have been the facts transpiring in relation to cot- 
ton and tobacco ; of the former of which, the planter was giving, in 1852, 
little short of five pounds for the same quantity of gold and silver that 
seven-and-thirty years before he obtained for one. 

The power to command the services of the precious metals grows with 
the growth of the power of association and combination. The policy of 
the Union is hostile to association, and hence it is that our products fall 
in price, while all the metals remain so dear. That is the course towards 
barbarism. You will probably be disposed to say, that prices are now very 
high, and that if such prices are to insure prosperity, it is certainly within 
our reach. Such would be the case, were it not for the causes to which 
they are due — great deficiency in the quantity produced. Twenty years 
since, we had similar prices, and for the same reason — all the energies of 
the country having then been given, as is now the case, to the creation of 
food and cotton-producing machinery, and not to the production of either 
food or cotton. Those high prices were, however, only the precursors of 
the ruinously low ones of 1841 and '42. 

The quantity of food now produced is far less, per head, than it was four 
years since ; while the average crop of cotton, for the last four years, has 
been less than that of 1851-'52. Desiring to know the cause, you need 
only to look to the facts, that the rural population of your own State is 
gradually diminishing; and that the young Ohio has now become the great 
emigrating State of the Union. The men who are now being driven from 
farms in the East, to found colonies in the West, are consumers, and not 
producers ; but the day approaches, when the effects of their labor will 
become visible in such a reduction of prices as has never before been known. 
Any one who, in 1835, had predicted the universal ruin of farms, that fol- 
lowed three years later, would have been listened to with an incredulity 
equal to that which you, probably, hear one say that the occurrences of 
1841-'42 are yet to be repeated. In the last ten years, we have added 
to our numbers almost as many millions ; and yet we have scarcely more 
persons engaged in the four chief branches of manufacturing than we 

545 



Money. 

had in 1847-'48. Nearly the whole increase has been driven to the crea- 
tion of farms and plantations, that will yet overwhelm the market with 
food and cotton. The whole policy of the country is adverse to the agri- 
cultural interest, for it tends toward cheapening raw products, and thus 
promoting the exports of the precious metals. 

- 13. u In every kingdom into which money begins to flow in greater 
abundance than formerly, everything," says Mr. Hume, in his well-known 
Essay on Money, " takes a new face : labor and industry gain life ; the 
merchant becomes more enterprising, the manufacturer more diligent and 
skilful 5 and even the farmer follows his plough with more alacrity and 
attention." 

That this is so, is well known to all. Why should it be so ? Because 
the circulation of society then increases, and all power — whether in the 
physical or social world — results from motion. When money is flowing 
in, every man is enabled to find a purchaser for his labor, and to become 
a purchaser of that of others. Therefore it is, that commerce so steadily 
increases in those countries in which the Californian and Australian pro- 
ducts now so rapidly accumulate — France, Germany, and Northern and 
Eastern Europe generally. When, on the contrary, money flows out, the 
circulation diminishes, and labor is everywhere wasted. That labor-power 
is capital, the result of the consumption of other capital in the form of 
food; and all the difference between an advancing and a declining state 
of society, is found in the fact, that in the one, there is a constant increase 
in the rapidity with which the demand for muscular or mental power fol- 
lows its production, while in the other, there is a daily diminution therein. 
The more instantly the demand follows the supply, the more is the force 
economized, and the larger is the power of accumulation. The longer the 
interval between production and consumption, the greater is the waste of 
force, and the less is the power of accumulation. 

Of all the machinery in use among men, there is none that exercises 
upon their actions so great an influence as that which gathers up and 
divides and subdivides, and then gathers up again, to be on the instant 
divided and subdivided again, the minutes and quarter-hours of a commu- 
nity. It is the machinery of association, and the indispensable machinery 
of progress; and therefore it is, that we see in all new or poor communi- 
ties so constant an effort to obtain something to be used in place of it; as 
is shown in various countries in which an irredeemable paper constitutes 
the only medium of exchange. Throughout the West, a currency of some 
description is felt to be among the prime necessities of life. So well is 
this want understood, that many Eastern banks supply notes expressly for 
Western circulation, and the people there pass them from hand to hand, 
because any money is better than none, and good they cannot get, for the 
reason that metallic money always flows from the place where the charge 
for its use is high, to that at which it is low. The rate of interest in the 
West is now enormous, but every day witnesses the export of gold to the 
East, where it is somewhat less; and yet even your high interest — rang- 
ing, as it has done for years, between ten and thirty per cent, per annum 
— cannot prevent it from going to France and Germany, where it com- 
mands but five or six per cent. Money thus obeys the same law as water 

546 



Money. 

— seeking always the lowest level. The latter falls upon the hills, but from 
the moment of its fall it never stops until it reaches the ocean ; nor does 
the gold of California, or the silver of Mexico, stop until it reaches that 
point at which money most abounds, and at which, for that reason, the 
price paid for its use is least. 

Of all the commodities in use by man, the precious metals are those 
that render the largest amount of service in proportion to their cost — and 
those whose movements furnish the most perfect test of the soundness or 
unsoundness of its commercial system. They go from those countries 
whose people are engaged in exhausting the soil, to those in which they 
renovate and improve it. They go from those at which the price of raw 
products, and the land itself, is low — from those at which money is scarce 
and interest is high. The country that desires to attract the precious 
metals, and to lower the charge for the use of money, has, then, only to 
adopt the measures required for raising the price of land and labor. In 
all countries, the value of land grows with that development of the human 
faculties which results from diversity in the modes of employment, and 
from the growth of the power of combination. That power grows in 
France, and in all the countries of Northern Europe ; and for the reason, 
as has been shown, that all those countries have adopted the course of 
policy recommended by Colbert, and carried out by France. It declines 
in Great Britain, in Ireland, in Portugal, in Turkey, in the Eastern and 
Western Indies, and in all countries that follow the teachings of the Brit- 
ish school. It has grown among ourselves in every period of protection ; 
and then money has flowed in, and land and labor have risen in value. It 
has diminished in every period in which trade has obtained the mastery 
over commerce. Land and labor have always declined in value as soon 
as our people had eaten, drunk, and worn foreign merchandise to the ex- 
tent of hundreds of millions of dollars, for which they had not paid ; and 
had thus destroyed their credit with other communities of the world. 

14. We are told, however, by the same writer — Mr. Hume — and in that 
he is followed by the modern economists — that the only effect of an in- 
crease of the supply of gold and silver is that of " heightening the price 
of commodities, and obliging every one to pay more of those little yellow 
or white pieces for everything he purchases." Were such really the case, 
it would be little short of a miracle that we should see money always, 
century after century, passing in the same direction — to the countries that 
are rich from those that are poor ; so poor, too, that they cannot afford to 
keep as much of it as is absolutely necessary for their own exchanges. 
The gold of Siberia leaves a land in which so little circulates that labor 
and its products are at the lowest prices, to find its way to St. Petersburg, 
where it will purchase less labor and less of either wheat or hemp than it 
would do at home j and that of Carolina and Virginia goes steadily and 
regularly, year after year, to the countries to which the people of those 
States send their cotton and their wheat, because of the higher prices at 
which they sell. The silver of Mexico, and its cochineal, travel together 
to the same market ; and the gold of Australia passes to Britain by the 
ship which carries the wool yielded by its flocks. 

Every addition to the stock of money, as we are assured by the inge- 

547 



nious men of modern days engaged in compiling treasury tables and 
finance reports, renders a country a good place to sell in, but a bad one 
in which to purchase. To what countries, however, is it that men have 
most resorted when they desired to purchase ? Have they not, until re- 
cently, gone, almost exclusively, to Britain ? It has been so, assuredly ; 
and for the reason, that there it has been that finished commodities were 
cheaply furnished. Where have they gone to sell ? Has it not been to 
Britain ? It certainly has been so ; and for the reason, that there it was 
that gold, cotton, wheat, and all other of the rude products of the earth, 
were dear. Where do they now most tend to go when they desire to 
purchase cloths or silks ? Is it not to France and Germany ? So it cer- 
tainly is ; and for the reason, that there it is that raw materials are high- 
est, and finished ones are cheapest. Gold follows in the train of raw ma- 
terials generally — these last being found, invariably, travelling to those places 
at which the rude products of the earth command the highest price, while 
cloth, iron, and manufactures of iron and other metals, may be purchased 
at the lowest ; and the greater the flow in that direction, the greater is 
the tendency to further enhancing the prices of the former, and reducing 
those of the latter. From this it would seem^that increase in the supply 
and circulation of money, so far from having the effect of causing men 
to give two pieces for an article that could before have been had for one, 
has, on the contrary, that of enabling them to obtain for one 'piece the 
commodity that before had cost them two ; and that such is the fact, can 
readily be shown. 

It is within the knowledge of all, that manufactures have greatly fallen 
in price — the quantity of cotton cloth that can now be obtained for a sin- 
gle dollar being as great as would formerly have cost five — and that the 
reduction has taken place in the very countries into which the gold of the 
world has steadily flowed, and into which it is now flowing — whence it 
would appear quite certain that finished commodities tend to fall as money 
flows in, while land and labor — the ultimate raw materials of all — tend to 
rise in price. The gold of California and Australia now goes to Germany, 
France, Belgium, and Great Britain, where money abounds and interest 
is low, because there manufactured commodities are cheap and money is 
valuable, when measured by them. It does not go to Spain, Italy, Portu- 
gal, or Turkey, because there manufactured goods are dear, and land and 
labor are cheap. It does not stop in Mississippi, Arkansas, or Texas, be- 
cause there, too, manufactures are dear, and land and labor are cheap ; 
but there it will stop at some future period, when it shall have been ascer- 
tained that the plough and the harrow should always have for their near 
neighbors the spindle and the loom. 

The higher products of a skilful agriculture — fruits, garden vegetables, 
and flowers — tend steadily to decline in price in all those countries into 
which money is flowing ; and for the reason, that agricultural improve- 
ment always accompanies manufactures, and manufactures always attract 
the precious metals. Every one familiar with the operations of the West, 
knows that while corn and pork are there always cheap, cabbages, peas, 
beans, and all green crops, are invariably scarce and dear; and so continue, 
until, as around Cincinnati and Pittsburg, population and wealth have 

548 



Money. 

given a stimulus to the work of cultivation. In England, the increase of 
green crops of all kinds has been immense, attended with the decline in 
price ; and in France, a recent writer* informs us that, notwithstanding 
the increase in the quantity of money, the price of wine is scarcely more 
than a fourth of what it was three centuries since. By another we are 
told, that " every man in France, of forty years of age, must have re- 
marked the sensible diminution of the price of garden produce, fruits of 
all kinds, flowers, etc. ; and that most of the oleaginous grains and plants 
used in manufactures have fallen in like manner ; while beets, carrots, 
beans, etc., have become so common that they are now fed to animals in 
the stablest 

Food thus becomes more abundant in those countries into which gold 
is steadily flowing, and it becomes less so in those from which the gold 
flows, as is seen in Carolina, which has steadily exhausted her land — in 
Turkey — in Portugal — and in India. In all those countries, land and la- 
bor are low in price. Give them manufactures — thus enabling their peo- 
ple to combine their efforts — and they will obtain and retain gold ; and 
then they will make roads, and the supplies of food will steadily increase 
as cloth and iron become cheaper ; and land and labor will then rise in 
price. 

15. Of what use, however, it may be asked, are further supplies of gold 
and silver when a country has obtained the full allowance required for the 
most perfect circulation of its products, and of the services of the persons 
of whom the society is composed ? Is it not possible that the commodity 
may become superabundant ? It is not ; and for the reason, that the uses 
of those metals are so numerous and great. Silver is better than iron for 
a great variety of purposes. The melting-pot of the goldsmith, or the 
subjection to the hammer of the gold-beater, is the ultimate destination 
of the whole of the vast products of Siberia, California, and xYustralia ; 
and the greater the power to use them in the arts, the more rapid must 
be the progress of civilization. That power grows with increase in the 
facility of combination, and the latter grows with the increased facility of 
obtaining this essential machinery of association. The miner of gold is 
thus always making a market for his commodity, and the more of it that 
he supplies, the greater is the tendency towards decline in the price of the 
cloth, the watches, the steam-engines, and the books that he seeks to pur- 
chase. In proof that such is the case, it is needed only that — looking 
back for half a century — we remark the vast increase in the demand for 
plate, and the growing substitution of gold for the silver that so recently 
was used. Forty years since, gold watches were the exception. Now, a 
silver watch is rarely seen. Thirty years since, a gold pencil-case was 
quite a rarity. Now, such cases are made almost by millions. A quar- 
ter of a century since, a gilt-edged book was an unusual article of luxury. 
Now, gold is required almost by tons for gilding the edges of books. So 
is it everywhere — gold and silver coming daily into use, because of the 
increased facility with which they may be obtained ; while all the com- 

* M. Moreau de Jonnes. 
f De Fontenay, Du Revenu Foncier. 
549 



Money. 

modities required for the miner's purposes have steadily declined in price. 
That " all discord" is " harmony not understood/' we are assured ; and 
the more we study the laws of nature, the more conclusive become the 
proofs that such is certainly the case. 

16. The use of bank-notes tends, however, as we are assured, to pro- 
mote the expulsion of gold. "Were it to do so, it would be in opposition 
to the great general law in virtue of which all commodities tend to, and 
not from, the places at which they have the highest utility. A bank is a 
machine for utilizing money, by enabling A, B, and C to obtain the use 
of it at the time when D, E, and F, its owners, do not need its services. 
The direct effect of the establishment of such institutions in the cities of 
Europe has always been to cause money to flow towards those cities ; and 
for the reason, that there its utility stood at the highest point. Even then, 
however, there were difficulties attendant upon the change of property in 
the money deposited with the bank — the owner being required to go to 
the banking-house, and write it off to other parties. To obviate this diffi- 
culty, and thus increase the utility of money, its owners were at length 
authorized to draw checks, by means of which they were enabled to trans- 
fer their property without stirring from their houses. 

The difficulty still, however, existed, that — private individuals not being 
generally known — such checks could, in general, effect but a single trans- 
fer, and thus the recipient of money found himself obliged to go through 
the operation of taking possession of that which had been transferred to 
him, after which he had, in his turn, to draw a check when he himself de- 
sired to effect another change of property. To obviate this, circulating 
notes were invented, and by their help the ownership of money is now 
transferred with such rapidity that a single hundred dollars passes from 
hand to hand fifty times a day — effecting exchanges, perhaps, to the ex- 
tent of many thousand dollars, and without the parties being at any time 
required to devote a single instant to the work of counting the coin. This 
was a great invention, and by its aid, the utility of money was so much 
increased that a single thousand pieces could be made to do more work 
than without it could be done by hundreds of thousands. 

This, of course, as we are told, supersedes gold and silver, and causes 
them to be exported. So we are certainly assured by those economists 
who regard man as an animal that must be fed and will procreate ; and that 
can be made to work only under the pressure of a strong necessity. Were 
they, however, to look, for once, at the real Man — the being made in the 
image of his Creator, and capable of almost infinite elevation — they would 
perhaps, arrive at a conclusion widely different. The desires of that man 
are infinite, and the more they are gratified, the more rapidly do they in- 
crease in number. The miserable Hottentot dispenses with a road of any 
kind, but the enlightened and intelligent people of other countries are seen 
passing in succession from the ordinary village road to the turnpike, and 
thence to the railroad; and the better the existing communications, the 
greater is the thirst for further improvement. The better the schools and 
houses, the greater is the desire for superior teachers and further additions 
to the comforts of the dwelling. The more perfect the circulation of 
society, the larger is the reward of labor, and the greater is the power to 

550 



Money. 

purchase gold and silver, to be used for the various purposes for which they 
are so admirably fitted, and the greater is the tendency to have them flow 
to the places at which the circulation is established. Money promotes the 
circulation of society. The check and the bank-note stimulate that circu- 
lation — giving thereby value to labor and land ; and wherever these checks 
and notes are most in use, there should the inward current of the precious 
metals be most fully and firmly established. 

That such is the case, is proved by the facts, that, for a century past, 
the precious metals have tended most to Britain, where such notes were 
most in use. Their use increases rapidly in France, with constant increase 
in the inward flow of gold. So, too, does it in Germany, towards which 
the auriferous current now sets so steadily that notes which are the repre- 
sentatives of money are rapidly taking the place of those irredeemable pieces 
of paper by which the use of coin has so long been superseded. 

Whence flows all this gold ? From the countries in which employments 
are not diversified ; from those in which there is little power of association 
and combination ; from those in which, therefore, credit has no existence ; 
from those, finally, which do not use that machinery which so much in- 
creases the utility of the precious metals, and which we are accustomed to 
designate by the term bank note. The precious metals go from California 
— from Mexico — from Peru — from Brazil — from Turkey — and from 
Portugal — the lands in which property in money is transferred only by 
means of actual delivery of the coin itself — to those in which it is trans- 
ferred by means of a check or note. It goes from the plains of Kansas, 
where notes are not in use, to New York and New England, where they 
are — from Siberia to St. Petersburg — from the banks of African rivers to 
London and Liverpool — and from the "diggings" of Australia to the 
towns and cities of Germany, where wool is dear and cloth is cheap. 

17. All the facts exhibited throughout the world tend to prove that 
every commodity seeks that place at which it has the highest utility ; and 
all those connected with the movement of the precious metals prove that 
they constitute no exception to the rule. Bank-notes increase the utility 
of those metals, and should, therefore, attract, and not repel, them. Nev- 
ertheless, the two nations of the world which claim best to understand the 
principles of commerce, are now engaged in a crusade against those notes ; 
and in the vain hope of thereby rendering their several countries more 
attractive of the produce of the mines of Peru, and Mexico, Australia and 
California. In this case, England follows in our lead — Sir Robert Peel's 
restrictions being later in date, by several years, than the declaration of 
war against circulating notes fulminated by our government. 

It is a pure absurdity ; and its adoption here is due to the fact that our 
system of policy tends to that expulsion of the precious metals which always 
must result from the long-continued export of the raw products of the earth. 
The administration that adopted what is called free trade, was the same that 
commenced the system of compelling the community to use gold instead of 
notes ; and the result was found in the disappearance from circulation of 
coin of any description whatsoever. From that time to the present, the 
motto of the generally dominant party of the Union has been — " War to 
the death against bank-notes ;" and, with a view to promote their expul- 
2L 551 



Money. 

9 

sion, laws have been passed in various States forbidding their use except 
when of too large size to enter freely into the transactions of the community. 
As must, however, inevitably be the case the tendency to the loss of the 
precious metals has always been in the direct ratio of the diminution in 
their utility thus produced. At one time only, in almost twenty years, has 
there been an excess import of those metals, and that was under the tariff 
of 1842. Then, money became abundant and cheap, because the policy 
of the country looked to the promotion of association and the extension 
of commerce. Now, it is scarce and dear, because that policy limits the 
power of association, and established the supremacy of trade. 

18. Of all the machinery in use among men, there is none whose yield 
is so great in proportion to its cost as that employed in effecting exchanges 
from hand to hand — none whose movements inward or outward are so 
strong an evidence of increase or decrease of the productive power of the 
community — none, therefore, that affords the statesman so excellent a ba- 
rometer by means of which to judge of the working of his measures. It 
is nevertheless, of all others, the one whose movements are, by economists 
generally, regarded as least worthy of consideration. By many of them 
we are even taught that the only effect of an increase in the supply of a 
commodity whose possession is so anxiously sought by all mankind, is 
that instead of having the labor of counting out one, two, or three hun- 
dred pieces, we should be forced to count three, six, or nine hundred; and 
that, therefore, there is economy in being forced to perform the work of 
exchange with the smallest quantity of the machinery by aid of which, 
alone, it can be performed. All the teachings on this subject are in direct 
opposition to those of the common sense of mankind ; and, as is usually 
the case, that to which all men are prompted by a sense of their own in- 
terests, is far more nearly right than that which is taught by philosophers 
who look inward to their own minds for the laws which govern man and 
matter — refusing to study the movements of the people by whom they are 
surrounded. 

The uninstructed savage finds in the waterspout and the earthquake the 
most conclusive proof of the wonderful power of nature. The man of sci- 
ence finds it in the magnificent, but unseen, machinery by means of which 
the waters of the ocean are daily raised, to descend again in refreshing 
dews and summer showers. He finds it, too, in that insensible perspira- 
tion which carries off so nearly the whole amount of food absorbed by men 
and animals. Again ; he sees it in the workings of the little animals, 
invisible to the naked eye, to whom we are indebted for the creation of 
islands, elaborated out of earth that has been carried from the mountains 
to the sea, and there deposited. Studying these facts, he is led to the 
conclusion, that it is in the minute and almost insensible operation of the 
physical laws he is to find the highest proof of the power of nature, and 
the largest amount of force. So, too, is it in the social world. To the 
uninstructed savage, the ship presents most forcibly the idea of commerce. 
The mere trader finds it in the transport of cargoes of cotton, wheat, or 
lumber \ and in the making of bills of exchange for tens of thousands of 
dollars, or of pounds. The student of social science, on the contrary, 
sees it in the exercise of a power of association and combination resulting 

552 



Money. 

from development of the various human faculties, and enabling each and 
every member of society to exchange his days, hours, and minutes for 
commodities and things to whose production have been applied the days, 
hours, and minutes of the various persons with whom he is associated. 
For that commerce, pence, sixpences, and shillings are required; and in 
them he finds willing slaves, whose operations bear to those of the ship, 
the same relation that is elsewhere borne by the little coral insect to the 
elephant. 

It is by means of combination of effort that man advances in civiliza- 
tion. Association brings into activity all the various powers, mental and 
physical, of the beings of which society is composed, and individuality 
grows with the growth of the power of combination. That power it is 
which enables the many who are poor and weak, to triumph over the few 
who are rich and strong; and therefore it is that men become more free 
with every advance in wealth and population. To enable them to asso- 
ciate, they need an instrument by help of which the process of composi- 
tion, decomposition, and recomposition of the various forces may readily 
be effected ; so that while all unite to produce the effect desired, each may 
have his share of the benefits thence resulting. That instrument was fur- 
nished in those metals which stand almost alone in the fact, that, as Mi- 
nerva sprang fully armed from the head of Jove, they, wherever found, 
come forth ready — requiring no elaboration, no alteration, to fit them for 
the great work for which they were intended, that of enabling men to 
combine their efforts for filling worthily the post at the head of creation 
for which they were designed. Of all the instruments at the command 
of man, there are none that tend in so large a degree to promote individu- 
ality on the one hand, and association on the other, as do gold and silver 
— properly, therefore, denominated the Precious Metals. 



553 



THE WOEKS 

OF 

HENRY C. CAREY. 



PRINCIPLES OF SOCIAL SCIENCE. In 3 vols. 8vo. Price $7 50. 

CONTENTS.— Volume I. Of Science and its Methods— Of Man, the Subject of Social Science— Of 
Increase in the Numbers of Mankind — Of the Occupation of the Earth (Two Chapters) — Of Value 
— Of Wealth — Of the Formation of Society — Of Appropriation — Of Changes of Matter in Place 
(Five Chapters) — Of Mechanical and Chemical Changes in the Forms of Matter (Five Chapters). 
Volume II. Of Vital Changes in the Form of Matter (Ten Chapters) — Of the Instrument of Asso- 
ciation (Eight Chapters). Volume III. Of Production and Consumption — Of Accumulation — Of 
Circulation — Of Distribution (Three Chapters) — Of Concentration and Centralization — Of Com- 
petition — Of Population — Of Food and Population — Of Colonization — Of the Malthusian Theory 
— Of Commerce (Four Chapters) — Of the Societary Organization — Of Social Science. 

THE PAST, THE PRESENT, AND THE FUTURE. In one vol. 8vo., 
price $2 ; 12mo., price $1. 

"Decidedly a book to be read by all who take an interest in the progress of social science." — 
London Spectator. 

"The field surveyed by Mr. Carey in the Past and Present is a broad one — broader than that of 
any book of our time, for it discusses every interest of man." — American Whig Review. 

" It is, as our readers see, the theory of progress, redeemed from the wildness of philosophical 
speculation, economically established, and brought home to us by the facts." — Dictionnaire de 
VEeonomie Politique. 

THE SLAVE TRADE ; Domestic and Foreign ; Why it Exists, and how 
it may be Extinguished. In one vol. 12mo. Price $1. 

CONTENTS.— The Wide Extent of Slavery— Of Slavery in the British Colonies— Of Slavery in the 
United States — Of Emancipation in the British Colonies — How Man passes from Poverty and 
Slavery toward Wealth and Freedom — How Wealth tends to Increase — How Labor acquires 
Value and Man becomes Free — How Man passes from Wealth and Freedom toward Poverty and 
Slavery — How Slavery Grew, and How it is now Maintained in the West Indies — How Slavery 
Grew, and is Maintained in the United States — How Slavery Grows in Portugal and Turkey — 
How Slavery Grows in India — How Slavery Grows in Ireland and Scotland — How Slavery Grows 
in England — How can Slavery be Extinguished ? — How Freedom Grows in Northern Germany — 
How Freedom Grows in Russia — How Freedom Grows in Denmark — How Freedom Grows in 
Spain and Belgium — Of the Duty of the People of the United States — Of the Duty of the People 
of England. 

From a Letter of the Hon. Richard W. Thompsox, of Indiana, to the Publisher, dated JunelS, 1S5S. 

"I have rarely read a work that so completely exhausts the subject it discusses. And besides 
being thorough and complete as an argument, all its positions are supported by an imposing and 
most instructive array of facts. * * * * * * * 

"Mr. Carey, with the sagacity of a profound philosopher, has seen all this, and has, most 
patriotically, employed his acknowledged ability and great learning, in an effort to enlighten the 
public mind upon the subject. He has met it fairly and fully, and if this work of his could be 
placed in the hands of every intelligent voter in the United States, its immediate effect would be 
seen in the restoration of quiet and concord amongst those who should never have forgotten that 
they were brethren, and in the entire withdrawal of the exciting subject of slavery from our na- 
tional politics." 

" He explores the philosophy of slavery, ' Why it exists, and how it may be extinguished,' just 
as one would preach for the cause and cure of cholera, of the explosion of steam-boilers, or any 
other event dependent upon fixed and inflexible laws." — Rochester Democrat. 

THE HARMONY OF INTERESTS: Agricultural, Manufacturing, and 
Commercial. In one vol. 8vo., paper, price 50 cents ; cloth, price $1. 

" We can safely recommend his remarkable work to all who wish to investigate the causes of the 
progress or decline of industrial communities." — Blackwood's Magazine. 

Any of the above books will be sent by mail, free of postage, at the publication price. 

HENRY CAREY BAIRD, 
406 Walnut Street, Philadelphia. 



